UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


Date of Report (Date of earliest event reported):   October 14, 2008


ENERGY COMPOSITES CORPORATION
(Exact name of registrant as specified in its charter)

Nevada
(State or other jurisdiction
of incorporation)
 
000-52397
(Commission
File Number)
 
88-0409170
(IRS Employer
Identifica­tion No.)


4400 Commerce Drive, Wisconsin Rapids, WI  54494
(Address of principal executive offices) (Zip Code)

(715) 421-2060
Registrant’s telephone number, including area code

Las Palmas Mobile Estates, 6767 Tropicana Avenue, Suite 207, Las Vegas, Nevada  89103
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))



Item 1.01
Entry into a Material Definitive Agreement.

The disclosure set forth in Item 2.01 of this report is incorporated herein by reference.

Item 2.01
Completion of Acquisition or Disposition of Assets.

On October 14, 2008, Energy Composites Corporation (formerly, Las Palmas Mobile Estates) (“ we ,” “ us ,” or “ our ”) consummated a share exchange (the “ Share Exchange ”) with Advanced Fiberglass Technologies, Inc., a Wisconsin corporation (“ AFT ”), and Jamie Lee Mancl, Jennifer Lynn Mancl and Integritas, Inc. (the “ AFT Shareholders ”) pursuant to that certain Share Exchange Agreement, as amended, between the parties dated as of June 26, 2008.  We consummated the Share Exchange pursuant to the approval of the holders of a majority of our issued and outstanding stock as of August 29, 2008.

We acquired 100% of the issued and outstanding shares of AFT’s common stock in exchange for 28,750,000 shares of our common stock.  In connection with the Share Exchange, Diana L. Hassan, our former President and director, cancelled and returned 21,750,000 shares of our common stock which she owned to treasury.  As a result of the Share Exchange, AFT is our wholly-owned subsidiary and we will operate its composites and fiberglass manufacturing business.

The following table illustrates the effects of the Share Exchange on the capital structure of our company:

Pre-Acquisition :
   
Shares outstanding
33,000,000
 
     
Acquisition :
   
Shares issued
28,750,000
 
Shares cancelled
21,750,000
 
     
Post-Acquisition :
   
Shares outstanding
40,000,000
100%
Shares owned by our stockholders
11,250,000
28%
Shares owned by AFT stockholders and assigns
28,750,000
72%

Upon the closing of the Share Exchange, Diana L. Hassan resigned as an officer and a director of our company.  As her final act as a director, she increased the seats on our board of directors to five and appointed Samuel W. Fairchild, Jamie Lee Mancl, Jennifer Lynn Mancl, Daniel P. Wergin, and Thomas J. Klismith to serve as our directors.

Effective October 14, 2008, we merged our wholly-owned Nevada subsidiary into our company.  We filed articles of merger with the Nevada Secretary of State, attached herewith as Exhibit 3.1, with an October 14, 2008 effective date.  Furthermore, we amended and restated our Articles of Incorporation, changing our name to “ Energy Composites Corporation ”.  The Amended and Restated Articles of Incorporation also increased our authorized shares of common stock to 100,000,000 and created 10,000,000 shares of undesignated preferred stock.  The Amended and Restated Articles of Incorporation were filed with the Nevada Secretary of State, attached herewith as Exhibit 3.2, with an October 14, 2008 effective date.  After completing the Share Exchange, our new board of directors adopted Amended and Restated Bylaws, attached herewith as Exhibit 3.3, effective October 14, 2008.

In connection with our new name, the trading symbol for our common stock was changed to “ENCC” and our new CUSIP number is 29269B 100.  Our common stock will begin trading under our new symbol and CUSIP number on October 15, 2008.

Finally, effective October 14, 2008, we adopted the 2008 Stock Incentive Plan pursuant to the approval of the holders of a majority of our issued and outstanding stock as of August 29, 2008.  The 2008 Stock Incentive Plan is attached herewith as Exhibit 10.1.

Disclosure pursuant to Item 2.01(f) follows.

 
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Forward-Looking Statements

This report on Form 8-K as well as other filings with the Securities and Exchange Commission (“ SEC ”) and our releases issued to the public contain various statements relating to future results, including certain projections and business trends.  These statements constitute “Forward-Looking Statements.”

Forward-looking statements include statements concerning plans, objectives, goals, strategies, expectations, future events or performance and underlying assumptions and other statements that are other than statements of historical facts.  Certain statements contained herein are forward-looking statements and, accordingly, involve risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.  Our expectations, beliefs and projections are expressed in good faith and are believed by us to have a reasonable basis, including without limitations, management’s examination of historical operating trends, data contained in our records and other data available from third parties, but there can be no assurance that management’s expectations, beliefs or projections will result or be achieved or accomplished.  Certain risks and uncertainties may cause actual results to be materially different from projected results contained in forward-looking statements in this Information Statement and in other disclosures.  Finally, our future results will depend upon various other risks and uncertainties, including, but not limited to, those detailed in our other filings with the SEC.  Actual results may differ materially from those expressed or implied by forward-looking statements.

History and Overview

We were incorporated on October 29, 1992 under the laws of the State of Nevada.  From April 1, 1993 we were inactive and were deemed to be a “shell” company, whose only purpose was to implement a new business plan.

On October 14, 2008, we acquired 100% of the issued and outstanding shares of AFT, in exchange for 28,750,000 shares of our common stock.  As a result of the Share Exchange, shareholders of AFT as a group owned approximately 72% of our shares then outstanding, and AFT became our wholly-owned subsidiary.  We changed our name to Energy Composites Corporation as of October 14, 2008.

For accounting purposes, the acquisition of AFT has been accounted for as a recapitalization of our company.  Since we had only minimal assets and no operations, the recapitalization has been accounted for as a reverse acquisition.  Therefore, the historical financial information prior to the date of the recapitalization is the financial information of AFT.

AFT was incorporated in the state of Wisconsin on January 1, 2005, following nearly ten years operating as M&W Fiberglass, LLC (“ M&W ”).  AFT is a manufacturer of corrosives storage and handling equipment in the Midwest, and has, with its new leased manufacturing facility, large automated manufacturing capabilities.

AFT’s manufacturing facility is owned by M&W, which is wholly-owned by our majority shareholders, Jamie Lee and Jennifer Lynn Mancl.  Founded in 1995, M&W was the operating entity that developed and operated AFT’s business.  In January 2005, M&W transferred all operating assets and liabilities into a newly formed S-Corporation: AFT.  M&W retained ownership of AFT’s former manufacturing facility.  In February of 2007, M&W sold AFT’s former manufacturing facility to the city of Wisconsin Rapids.  M&W then purchased and developed AFT’s current manufacturing facility by obtaining $4,000,000 of financing as a co-borrower with AFT, in the form of industrial revenue bonds and notes.  AFT currently leases its manufacturing facility for $35,000 per month from M&W.  AFT has an irrevocable option to purchase the leased manufacturing facility and the land for $4,500.000.  This option expires on June 18, 2009.

M&W is considered a variable interest entity whose operations are consolidated with AFT’s for financial accounting and reporting purposes.  Among other factors, one factor that defines a variable interest entity is that another party has the obligation to absorb the expected losses of the entity.  M&W’s liabilities are directly attributable to AFT by virtue of its status as co-borrower and/or guarantor of such liabilities.  While AFT has the obligation to pay M&W’s liabilities if it cannot, the manufacturing facility is not owned by us or AFT.

In September 2006, our majority shareholders, Jamie Lee and Jennifer Lynn Mancl, formed Fiberglass Piping & Fitting Company (“ FPF ”) and began operating FPF out of the same manufacturing facility that AFT
 
 
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utilizes.  FPF is a wholesale distributor of imported fiberglass piping and fitting products.  From time to time, AFT purchases products from FPF for use in the manufacture and installation of its products.  As of October 9, 2008, FPF has moved to its own location and AFT has been released as a guarantor on FPF’s debts.  AFT has entered into a supply contract with FPF, whereby AFT will purchase products from FPF at FPF’s cost.

Description of our Business

As a result of the Share Exchange, AFT’s business is now our business and this discussion will describe AFT’s history and business as our own.  We are a provider of materials to the alternative energy, flue gas desulfurization (“ FGD ”), mining, pulp and paper, water and waste water treatment, environmental compliance, petrochemical and power generation industries.

We use composite materials to engineer and manufacture complex composite structures, vessels and processing systems including holding tanks, and ancillary equipment manufactured from composite material, and composite ductwork and piping.  We also provide industrial retrofit services using composites, and maintain two full-time, 24/7 field service crews with full mobile capability to provide plant shutdown and maintenance, refurbishing, tanks and vat relining, tank field-erection, tank and equipment inspection and repair services, as well as installation of pipelines, crossovers, hoods, scrubbers, absorption towers, stacks and stack liners.  Our vinylester and polyester resin, thermoplastic/fiberglass composite laminate, and carbon fiber composite fabrication systems and processes meet or exceed the requirements set by the Society of Plastic Industries, American Society of Testing Materials, Reinforced Thermoset Plastics Corrosion Resistant Equipment Accreditation Program established by the American Society of Mechanical Engineers (“ RTP-1 ”), and OSHA.  We are well pursuing the RTP-1 Certification process, and upon completion, we will be one of only nine certified RTP-1 companies in the world.  We believe this certification will provide a competitive edge in the FGD marketplace.

We have not made any material expenditure on research and development in the past two fiscal years.

The following list identifies the various markets in which we currently compete:

·    
Alternative Energy:   We currently manufacture bio-fuel storage tanks and piping systems as well as bio-fuel-related waste water treatment tank systems for ICM Bio Phoenix and US BioEnergy/Fagen Engineering (both headquartered in Kansas).

·    
Flue Gas Desulfurization:   We manufacture and install equipment for FGD systems for Hitachi (Japan), Plasticon Europe (Netherlands) and Sargent & Lundy (Chicago), with a significant portion of our FGD manufacturing and installation performed on the client site using mobile facilities.
 
·    
Municipal Infrastructure:   We manufacture and install composite based solutions to extend the service life of municipal utility lift stations and access infrastructure.
 
·    
Mining :  We manufacture and install piping, ductwork, tanks and other structures for the mining industry, including the White Pine Copper Refinery.  We also fabricate composite tanks, fittings and relining services for the chlor-alkali manufacturer, ERCO Worldwide (Canada).

·    
Environmental Compliance:   We engineer, manufacture and service composite-based odor control systems for Tyson Foods (Arkansas), Tonka (Minnesota) and SCP Controls (Minnesota).

·    
Pulp and Paper:   We provide composite storage and piping solutions to pulp and paper manufacturers New Page (Ohio), International Paper (Memphis), Smurfit-Stone (Chicago), Glatfelter (Pennsylvania), Boise Cascade (Idaho), Domtar (Canada), Georgia Pacific (Atlanta), Verso Papers (Memphis) and Weyerhaeuser (Washington).
 

 
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Manufacturing Facilities and Processes

We lease a new 73,000 square foot composites manufacturing plant in Wisconsin Rapids, Wisconsin from M&W.  We have the option to expand this plant by an additional 316,650 square feet.  We are in negotiations to acquire adjacent land from the local municipality that would allow for a further 350,000 square foot expansion of our manufacturing facilities.  The plant has advanced climate control capabilities, critical in manufacturing processes using industrial carbon fibers, as well as bulk materials storage facilities that incorporate what we believe to be the latest and most advanced designs.  Our bulk material storage facilities exceed all current and envisioned environmental and workplace safety standards.  The plant and material storage facilities have direct rail and highway access.  We also have the ability to lease from RCH Enterprises, Inc., modularly, up to 150,000 square feet of climate controlled storage space as a distribution hub for carbon fiber and epoxy resin.  This space is located within five miles of the existing plant.

Our plant currently features four automated filament winders: (i) a computer-controlled, dual-mandrel filament winder, the Ultra Helical model manufactured by Magnum Venus, capable of producing, simultaneously, two 16-foot diameter, 43-foot long products; (ii) an automated single-mandrel filament winder, Model 20C manufactured by Dura-Winder, capable of producing a product up to 24 feet in diameter and 20 feet long; (iii) two automated, single-mandrel filament winders, Model 10C manufactured by Dura-Winder, each capable of producing a product up to 7 feet in diameter and 20 feet long; (iv) a vertical filament winder capable of producing product 20 to 30 feet in diameter and 12 feet long; and (v) we have ordered an Ultra Helical filament winder manufactured by Magnum Venus, capable of producing product up to 40 feet in diameter and 40 feet in length.

Based on a standard product output, we have a fixed plant production capacity of 10 million pounds of finished standard product annually.  Full build-out of the current plant would triple that capacity to 30 million pounds, and development of the adjacent land would add another 40 million pounds in capacity, for a total Wisconsin Rapids production capability of 70 million pounds of finished product.  We currently operate at an annual production rate equivalent of 4.5 million pounds of finished standard product.

Mobile Production Capability

We use mobile fabrication capability to service the rapidly growing FGD market.  We are able to produce more than 70% of our FGD component content directly on the client’s site, allowing us to expand FGD revenues substantially without significant investment in new manufacturing facilities.  We are completing our own RTP-1 accreditation in order to become one of only nine organizations meeting the standard globally.  We believe that our mobile FGD capability already exceeds the RTP-1 standards.  We currently employ one of the country’s leading specialists in FGD who sits on the Accreditation Committee for the RTP-1 standard.  The power generation industry must convert power plants in order to meet stringent FGD standards by 2015, and we believe that vendor companies with RTP-1 accreditation enjoy a substantial advantage over the competition.

Competition

We face robust competition in most of our markets, and several of our competitors are involved in several of our geographic markets.  We believe that our move into the new manufacturing facility in August 2007, the addition of new, automated filament winding equipment in 2007, the expansion of our field service crews in 2008, and continued investment in workforce training will enable us to strengthen our competitive position in the markets we serve.  We believe these investments have substantially increased production capacity and thereby improved our competitive position in the markets we serve.  Based on information gained from numerous years of bidding potential projects, we believe there are no dominant competitors in our current or anticipated market sectors.  The following lists major competitors of which we are aware in each of our major markets:

Composite tanks for bio-fuel storage, mining, pulp and paper and petrochemical :   Belding Tank Technologies, Inc. (Michigan), Ershigs, Inc. (Washington), Tankinetics, Inc. (Arkansas) and Design Tanks, Inc. (South Dakota).  We believe that our manufacturing capacity is more advanced than that of our competitors in this sector.
 

 
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Flue gas desulfurization :   Tankinetics, Inc. (Arkansas), Ershigs, Inc. (Washington), AN-COR Industrial Plastics, Inc. (New York), Augusta Fiberglass, Inc. (South Carolina), Plasticon Europe, B.V. (Netherlands).  We believe that the overwhelming unmet demand driven by the 2015 regulatory deadline for power plants in the United States provides more than adequate market growth opportunity for us despite our competition in this area.

Water management and storage :   Belding Tank Technologies (Michigan), Ershigs, Inc. (Washington), Tankinetics, Inc. (Arkansas), Design Tanks, Inc. (South Dakota) and one main piping manufacturer, Future Pipe Industries (Dubai).  We anticipate substantial growth in demand for quality water storage and management  infrastructure over the next five years, and believe that the competitive environment in this sector will become more favorable for us.
 
Our key geographic markets are in North America, and there is no significant competition from overseas production facilities in any of our market sectors.  We believe that we enjoy certain manufacturing advantages over several of our competitors with extensive use of automated fabrication processes and our highly productive work force.  We believe these advantages will continue to drive our competitive value as we expand our share of existing markets and enter new ones.

Major Customers

We have three customers that accounted for approximately 71% of our revenues in 2007.  One of these customers, Martin Manufacturing, accounted for 47% of total 2007 revenues.  The same three customers accounted for approximately 54% of our outstanding accounts receivable at the end of 2007.  Our largest customer operates in the bio-fuel and water storage and handling sector and has been developing several major projects.  Given the current and planned projects, we anticipate that Martin Manufacturing will continue to be a major customer for some time.  Our expected revenues from these three customers will be approximately 50% of total revenues during 2008.

Major Suppliers

We use three main suppliers of raw composites materials in our manufacturing operations.  Payments to those suppliers accounted for 59% of all raw materials purchased in 2007.  The same three suppliers accounted for 52% of all outstanding accounts payable at the end of 2007.

We have established relationships with several domestic and foreign suppliers of the raw materials used in our production processes and will use these sources according to material availability and pricing.  In the event our primary suppliers are unable to continue to supply our raw materials requirements, there are several alternative suppliers available to fulfill our supply needs.  We have not experienced supply procurement problems regarding the primary raw materials used in the production process.

Employees

At October 14, 2008, we employed 86 full-time employees, 28 of which are represented by the United Association of Plumbers and Steamfitters under a contract that expires on May 31, 2009, and six of which are represented by the United Association of Journeymen and Apprentices of Plumbing and Pipefitting Industry of the United States and Canada under a contract which expires on May 31, 2009.  We believe that our relationship with all of our employees is good.

Government Regulation of the Environment and Occupational Health and Safety

We are subject to various environmental laws and regulations that apply to the production, use and sale of composites, emissions into the air, discharges into waterways and other releases of materials into the environment and the generation, handling, storage, transportation, treatment and disposal of waste material.  We endeavor to ensure the safe and lawful operation of our facilities in the manufacture and distribution of products, and we believe we are in material compliance with all applicable laws and regulations.

We maintain a disciplined environmental and occupational safety and health compliance program and conduct periodic inspections of our facilities and processes to identify and categorize potential environmental
 
 
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exposures and safety hazards, including compliance issues and any actions that may be required to address them.  This effort can result in process or operational modifications, the installation of pollution control devices or cleaning up grounds or facilities.  We believe that we are in material compliance with all applicable requirements.

We incurred a total of $478,278 in regulatory compliance expenses in 2007, and $16,540 in 2006.  Our regulatory compliance expenses in 2007 were largely driven stemming from start up of our new plant and the associated regulatory approvals of health and safety, environmental protection and other systems.
 
Going forward, we believe that compliance with all current government regulations will not have a material adverse effect on our results of operations or financial condition.  The risk of additional costs and liabilities, however, is inherent in certain plant operations and certain products produced at our plant, as is the case with other companies in the composites industry.  Therefore, we may incur additional costs or liabilities in the future.  Other developments, such as increasingly strict environmental, safety and health laws, regulations and related enforcement policies, discovery of unknown conditions, and claims for damages to property, persons or natural resources resulting from plant emissions or products could also result in additional costs or liabilities.

A number of foreign countries and domestic communities have enacted, or are considering enacting, laws and regulations concerning the use and disposal of composite materials.  Widespread adoption of these laws and regulations, along with public perception, may have an adverse impact on sales of our products.  More stringent regulation of the use and disposal of composites may have an adverse effect on our business.

Legal Proceedings

From time to time, we anticipate that we may become involved in litigation relating to claims arising out of our operations in the normal course of business.  We are not currently a party to any material legal proceedings.

Plan of Operation and Development

We are embarking on a simultaneous, four-part expansion and diversification strategy that relies on our core operating strengths of strong commitment to quality, consistent reputation for reliable delivery, significant use of advanced manufacturing methodologies, and a highly skilled and productive labor force.  All four parts fit within a strategic umbrella encompassing activities that promote “clean technology”, including expansion and diversification into alternative energy and environmental compliance sectors.

Part 1:   We plan to expand aggressively within our existing market sectors: bio-fuel, FGD, municipal infrastructure, mining, environmental compliance, pulp and paper, and field services product lines.  Three of these sectors (bio-fuel, municipal infrastructure, mining, and FGD) are only at the earliest stages of using composites, and we believe that we will be well positioned to deepen our vendor relationships with existing clients as well as broaden our penetration to include other clients.  Market growth in this sector is driven by regulatory requirements.  For example, the federal government has mandated FGD for power generation plants by 2015, environmental requirements for elimination of the use of mercury in the production of chlorine-related products, and federal mandates for bio-fuel production increasing from 6 billion gallons in 2007 to 36 billion in 2012.

Of particular note is our ability to expand more aggressively into FGD services for the power generation industry.  Using mobile production teams, we plan to penetrate this sector by adding additional mobile units and dedicating a portion of our fixed plant to support those teams.  We believe that our ability to access particularly well qualified personnel from the Wisconsin labor market will continue to provide a strong platform for FGD market growth.  We also believe securing the RTP-1 accreditation will enhance our ability to price services above sector averages.  We plan to increase our field services capacity in parallel with the growth of our mobile manufacturing capability.  We believe this field services division will be well positioned to penetrate the growing market for repairing fiberglass blades on wind towers around North America.
 
Our innovative designs for retrofitting composite liners into existing municipal utility lift stations represents an enormous growth opportunity for us in the near and mid-term.  Our solution reduces the cost of repairing flood-related damage to these lift stations by as much as 65%.  With our delivery partners, we expect to capture a substantial portion of the post-Katrina and post-Ike hurricane damage contracts.
 
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Going forward, bio-fuel growth presents an attractive opportunity for us.  The government regulation mandating a six-fold increase in bio-fuel production over five years did not consider the lack of transport and storage infrastructure for bio-fuels in the United States.  The industry will need to expand its efforts to deliver the needed complement of tanks, piping, valves and other components for delivery of bio-fuels to the final consumer.
 
We will expand our mining sector support and production services to take advantage of a significant upswing in North American mining operations due to increased commodity pricing and substantial expansion of commodity demand in China, Indonesia and other parts of the world.

We plan to diversify into the manufacture of composite components for other “clean technology” applications and alternative energy markets, including, for example, building tank/hulls and ancillary structures for methane digesters used in the production of farm-derived bio-fuel.
 
Part 2:   We are entering the market for distributing carbon fiber and epoxy resin raw materials to wind system component manufacturers.  Our strategy is to become a significant distributor for carbon fiber fabric, yarn and compatible epoxy resins for use in the growing wind energy industry in North and South America.  We plan to capitalize on a strong industry trend to build and install larger wind turbines with longer, lighter blades designed to increase the efficiency of the turbine’s energy generating performance and to shift manufacture of nacelles and rotors from steel to carbon fiber and other composite materials.

We are negotiating an exclusive distribution agreement covering the Western Hemisphere with a large Asian-based manufacturer of industrial grade epoxy resin for fabrication using carbon fiber, and we are in the final stages of negotiating a distribution agreement for industrial grade carbon fiber fabrics and yarns with another major Asian supplier.  We are currently negotiating agreements to supply several of the largest manufacturers of wind turbine blades and ancillary components.  Here, growth is driven by increasing demand for larger turbines, longer, lighter and stiffer blades, and maintenance-free, lighter structural components, as well as a lingering shortage in supply of suitable carbon fiber and compatible resins.  We also plan to supply epoxy resin to wind energy manufacturers who are using conventional fibers in their component design.

Part 3:   We intend to diversify into the manufacture of composite components for wind energy systems, especially blade assemblies, nacelle housings and rotor components.  Use of composites in blade manufacturing is at an early stage in the wind-energy industry.  Many of the advanced manufacturing processes, material selection, and product designs that we have deployed in our tank and piping manufacturing business have not yet been deployed to the wind energy industry.  We intend to become a major manufacturer of wind blades, blade components, and other system components by introducing these composite manufacturing advancements into the wind energy industry.  We are pursuing negotiations with two large wind energy system integrators to manufacture blade structural elements, and we have begun negotiations to meet a full blade-manufacturing requirement.  This sector continues to expand rapidly, evidenced by recent announcements of multi-billion dollar investments by large companies into wind energy over the next decade.  We believe that the use of carbon fiber in the manufacture of blades alone will improve operating economics of a wind turbine significantly, further accelerating the growth trends for wind energy.

Part 4:   We see an opportunity to produce structural components for transportation infrastructure, including new construction and repair of existing infrastructure using carbon fiber.  We intend to position ourselves as a manufacturer of these components as this market continues to develop.

Taken together, we believe that our four-part strategy will help to establish our company as the early-stage leader in the use of advanced composites across the alternative energy and environmental compliance and protection industries, providing a promising platform for sustainable and managed growth.

Our business plan will require two early tranches of funding.  The initial tranche of up to $10 million will provide the capital necessary to purchase additional mobile winders that will accelerate our penetration of the FGD market as well as the repair market for blades on wind turbines.  The first tranche will also provide important working capital for the expansion of our carbon fiber and resin distribution division as well as our wind blade component manufacturing efforts.  This initial tranche will be raised through a private placement of convertible debentures and common stock purchase warrants.  To date, we have sold debentures in the principal amount of more
 
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than $4,500,000.  We have used a portion of these funds to make down payments for the purchase of manufacturing equipment and for start-up costs associated with the formation of our Field Services Division.

The second tranche of approximately $15 million will provide the initial capital required for rapid expansion into the wind energy market, including development of a new 330,000 square foot blade manufacturing facility.  That capital will come largely from exercise of the common stock purchase warrants sold with the debentures from the first tranche of financing.  There can be no guarantee that the common stock purchase warrants will be exercised.  If such warrants are not exercised, we may be forced to pursue other sources of debt or equity financing to continue to develop our business plan.  We have not yet identified any additional sources of debt or equity financing and such additional financing may not be available to us upon favorable terms or at all.
 
The remainder of our current business plan will be financed through retained earnings, although we envision the possibility of acquisition in order to expand our capacity more quickly and secure strategic market presence.  In such an event, we may need to raise additional funds through the sale of debt or equity instruments.

Discussion and Analysis of AFT’s Operations and Financial Condition

The following discussion should be read in conjunction with the AFT financial statements and the related notes included herein.  This discussion contains forward-looking statements that involve risks and uncertainties.  Actual results could differ significantly from those projected in the forward-looking statements as a result of many factors, including those discussed in “ Risks of our Business ” and elsewhere in this report.

Overview:   We acquired AFT as our wholly-owned subsidiary as of October 14, 2008.  The acquisition is treated as a recapitalization of our company with AFT’s historical financial information.  AFT began operations in 1995 as M&W.  All operating assets and liabilities were transferred to AFT, a newly formed S-Corporation on January 1, 2005.  In 2007, M&W sold its former manufacturing facility and built a larger facility in Wisconsin Rapids, Wisconsin.  In connection with the sale of the former facility, AFT moved its operations to the new, larger facility.  M&W, wholly-owned by our majority shareholder, continues to own the manufacturing facility and land used by AFT.  We have an irrevocable option to purchase the manufacturing facility and land from M&W for $4,500,000.  M&W is considered a variable interest entity whose financial statements are consolidated with AFT for financial reporting purposes.  All significant intercompany transactions and accounts were eliminated in consolidation.

FPF formerly operated out of the same manufacturing facility as AFT, but has relocated to a separate facility.  FPF was formerly considered a variable interest entity due to AFT guaranteeing its debts.  We believe FPF will not be considered a variable interest entity at the year ended December 2008 because AFT no longer guarantees any of FPF’s liabilities, it has moved to a new facility, and it will have sufficient capital to operate on its own.

The discussion of the results of our operations and financial condition included herein includes the operations and assets of M&W and FPF.  We did not acquire M&W or FPF as part of the Share Exchange transaction.  We anticipate purchasing the land and buildings constituting our current manufacturing facility from M&W prior to the June 2009 expiration of our option.  The revenues and expenses attributable to M&W and FPF should not be considered part of AFT.  The discussion below separates the revenues and expenses attributable to M&W and FPF in order to provide an indication of what can be expected to continue after the Share Exchange transaction and after the exercise of our option to purchase the plant from M&W.

Results of Operations:

For the Six Months Ended June 30, 2008 and 2007.   For the six months ended June 30, 2008 and 2007, AFT generated $3,569,325 and $2,204,168 of consolidated revenue, respectively.  Revenue attributable to M&W and FPF represented $306,976 and $56,329 of total consolidated revenue for the six months ended June 30, 2008 and 2007, respectively.  The increased consolidated revenue of $1,365,157 for the six months ended June 30, 2008 represents 61.9% growth in revenue over the six months ended June 30, 2007.  For the six months ended June 30, 2008, $250,647 of the revenue increase, or 18.3% of total growth, is attributable to M&W and FPF.  Our revenue growth continued to be the result of volume increases in product sales in the bio-fuel sector and several other large projects across other markets that AFT has supplied.  For the six months ended June 30, 2008, AFT recorded
 
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$121,406 of incremental revenue from bio-fuel related tanks compared to the six months ended June 30, 2007.  Additionally, for the six months ended June 30, 2008, AFT supplied several large projects and began the start-up of our field services division resulting in additional revenue growth of $814,484 compared to the six months ended June 30, 2007.  The remainder of the increase over the comparable period was due to price increases, mostly inflationary.  AFT’s largest customer accounted for 46.7% of its total sales for the six months ended June 30, 2008 compared to 63.6% for the six months ended June 30, 2007.

The cost of goods sold in the six months ended June 30, 2008 increased in connection with the revenue growth.  Cost of goods sold was $3,029,524 and $1,963,204 during the six months ended June 30, 2008 and 2007, respectively.  Cost of goods sold attributable to M&W and FPF represented $264,885 and $74,629 for the six months ended June 30, 2008 and 2007, respectively.  The increased cost of goods sold of $1,066,320 for the six  months ended June 30, 2008 represents a 54.3% increase over the six months ended June 30, 2007 and is a result of increased revenue and manufacturing overhead associated with the new plant.  $190,256 of that increase, or 17.8%, is attributable to M&W and FPF.  The major components of cost of goods sold are raw materials used in manufacturing, manufacturing labor, and manufacturing overhead.  The primary raw materials used in the manufacturing processes are isophathalic, polyester, and vinyl-ester resins and fiberglass.  Manufacturing labor includes wages, employment taxes, employee benefits, and union expenses.  The major components of manufacturing overhead are rent and utilities for the manufacturing facility, travel and lodging expense associated with field service activities, manufacturing supplies, and depreciation of manufacturing equipment.  For the six months ended June 30, 2008, manufacturing overhead increased to 19% of consolidated sales from 12% of consolidated sales for the six months ended June 30, 2007.  The increases in manufacturing overhead are primarily due to increased costs associated with the new manufacturing facility which includes depreciation expense.

Gross profit for the six months ended June 30, 2008 and 2007 was $539,801 and $240,964, or 15.1% and 10.9% of revenue, respectively.  Gross profit (loss) attributable to M&W and FPF for the six months ended June 30, 2008 and 2007 was $42,091 and $(18,300), respectively.  When taken separately, AFT’s gross profit was approximately 15.3% and 12.1% of its revenue in the six months ended June 30, 2008 and 2007, respectively.  AFT has realized improvement in gross profit in 2008 from a higher output to labor ratio in manufacturing and efficiencies from its new manufacturing equipment.  These improvements have been partially offset by increases in manufacturing overhead associated with the new plant and start-up costs of the field service division.

Consolidated selling, general and administrative expenses were $1,024,966 and $491,660 for the six months ended June 30, 2008 and 2007, or 28.7% and 22.3% of revenue, respectively.  Consolidated selling, general and administrative expenses are net of eliminations of rental activity for M&W of $219,000 and $25,500 in the six-month periods ended June 30, 2008 and 2007, respectively.  Selling, general and administrative expenses of FPF and M&W were $62,061 and $11,266 in the six months ended June 30, 2008 and 2007, or 6.1% and 2.3% of total consolidated selling, general and administrative expenses, respectively.  The increase in expenses is primarily due to increased administrative headcount to support the growing operations which resulted in added expenses of $429,313 and increased overhead associated with the larger facilities which resulted in added expenses of $41,208 for the six months ended June 30, 2008.

AFT recognized a one-time gain on the sale of the land and building of $100,220 in the six months ended June 30, 2007.  This gain was due to M&W’s sale of the former manufacturing facility and is not attributable to AFT.

(Loss) from operations was $(485,165) and $(150,476) for the six months ended June 30, 2008 and 2007, respectively.  Income from operations attributable to M&W and FPF was $199,030 and $96,154 for the six months ended June 30, 2008 and 2007, respectively.  After removing the M&W and FPF income, the (loss) from operations was $(684,196) in the six months ended June 30, 2008 compared to (loss) from operations of $(246,630) in the six months ended June 30, 2007.  The $437,566 increase in loss from operations in 2008 is primarily due to the increase in manufacturing overhead and selling, general and administrative expenses incurred in 2008.

Interest expense was $171,806 and $33,687 for the six months ended June 30, 2008 and 2007, respectively.  Interest expense relating to M&W and FPF for the six months ended June 30, 2008 and 2007 was $104,724 and $11,698, respectively.  Interest expense increased $138,119, or 410%, in the six months ended June 30, 2008 compared to the six months ended June 30, 2007.  The overall increase is due to increased short- and long-term debt
 
 
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borrowings in 2008 relating to the new manufacturing facility and equipment and working capital lines of credit to fund increased operations.  AFT was either a co-borrower or a guarantor on all of the consolidated company’s debt.

Consolidated (loss) before non-controlling interest in variable interest entities was $(656,971) and $(181,383) for the six months ended June 30, 2008 and 2007, respectively.  The income attributable to M&W and FPF was $94,306 and $84,456 for the six months ended June 30, 2008 and 2007, respectively, and has been subtracted out to arrive at the net (loss) attributable to AFT totaling $(751,277) and $(265,839) for the six months ended June 30, 2008 and 2007, respectively.  The increased loss in 2008 is largely due to the 108.5% increase in selling, general and administrative expenses in 2008 as discussed above.
 
Effective January 1, 2008, AFT elected to revoke its S-Corporation status thereby becoming a C-Corporation for income tax purposes.  As a result, a net income tax benefit of $185,000 was recorded for the six months ended June 30, 2008.  At June 30, 2008, this net tax benefit consisted of a one-time expense of $110,000 to record the net deferred tax liabilities at January 1, 2008 due to the change in tax status offset by a net deferred tax benefit totaling $295,000 for the six months ended June 30, 2008.  For the six months ended June 30, 2007, a provision for income tax was not recorded since the company filed income taxes as an S-Corporation.  Net (loss) after taxes for the six months ended June 30, 2008 and 2007 was $(566,277) and $(265,839), respectively.

For the Years Ended December 31, 2007 and 2006.   For the years ended December 31, 2007 and 2006, AFT generated $6,541,256 and $4,663,305 of consolidated revenue, respectively.  Revenue attributable to M&W and FPF represented $168,836 and $12,798 of total consolidated revenue in 2007 and 2006, respectively.  The increased revenue of $1,877,951 in 2007 represents 40.3% growth in revenue over 2006.  $156,038 of that increase, or 8.3% of total growth, is attributable to M&W and FPF.  AFT’s revenue growth was primarily attributable to volume increases in product sales to the bio-fuel sector and several other large projects across various markets that it has supplied.  For the year ended December 31, 2007, AFT recorded $913,100 of incremental revenue from bio-fuel related tanks compared to the year ended December 31, 2006.  Additionally for the year ended December 31, 2007, AFT supplied several other large projects resulting in additional revenue growth of $613,194 compared to the year ended December 31, 2006.  The remainder of the increase over the comparable period was due to small price increases, mostly inflationary.  AFT’s largest customer accounted for 47.3% of total AFT sales for the year ended December 31, 2007 compared to 32.3% for the year ended December 31, 2006.

The cost of goods sold in 2007 increased in connection with the revenue growth.  Cost of goods sold was $5,215,245 and $3,711,715 during the years ended December 31, 2007 and 2006, respectively.  Costs of goods sold attributable to M&W and FPF represented $171,361 and $12,151 in 2007 and 2006, respectively.  The increased cost of goods sold of $1,503,530 represents a 40.5% increase over 2006, or approximately the same amount of growth as revenue.  $159,210 of that increase, or 10.6%, is attributable to M&W and FPF.  The major components of cost of goods sold are raw materials used in manufacturing, manufacturing labor, and manufacturing overhead.  The primary raw materials used in manufacturing processes are isophathalic, polyester, and vinyl-ester resins and fiberglass.  Manufacturing labor includes wages, employment taxes, employee benefits, and union expenses.  The major components of manufacturing overhead are rent and utilities for the manufacturing facility, travel and lodging expense associated with field service activities, manufacturing supplies, and depreciation of manufacturing equipment.  For the year ended December 31, 2007, manufacturing overhead increased to 11% of sales from 10% of sales for the year ended December 31, 2006.  The primary increases in manufacturing overhead are increased costs associated with the new manufacturing facility which AFT began occupying in August 2007.

Gross profit for the years ended December 31, 2007 and 2006 was $1,326,011 and $951,590, or 20.3% and 20.4% of revenue, respectively.  Gross profit (loss) attributable to M&W and FPF in 2007 and 2006 was $(2,525) and $647, respectively.  When taken separately, AFT’s gross profit was approximately 20.8% and 20.4% of its revenue in 2007 and 2006, respectively.  Gross profit in 2008 should continue to increase due to being in the new facility for the entire year and from new equipment efficiencies.

Consolidated selling, general and administrative expenses were $1,085,521 and $587,483 for the years ended December 31, 2007 and 2006, and represents 16.6% and 12.6% of revenue, respectively.  Consolidated selling, general and administrative expenses are net of eliminations of rental activity for M&W of $188,500 and $48,000 in 2007 and 2006, respectively.  Selling, general and administrative expenses of FPF and M&W were $49,119 and $25,769 in 2007 and 2006, or 4.5% and 4.4% of total consolidated selling, general and administrative
 
 
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expenses, respectively.  The increase in expenses is primarily due to (i) one-time costs associated with moving to a new manufacturing facility which increased expenses by approximately $25,000 in 2007; (ii) fees and other charges associated with obtaining financing and regulatory approval for the new manufacturing facility which increased expenses by $1,351 in 2007; (iii) increased administrative headcount to support the growing operations which increased expenses by $455,888 in 2007; (iv) increased overhead associated with larger facilities which increased expenses by $19,904 in 2007; and (v) legal and accounting fees associated with the preparation and audit of financial statements which increased expenses by $49,818 in 2007.

AFT recognized a one-time gain on the sale of the land and building of $100,220 in 2007.  This gain is due to M&W’s sale of the former manufacturing facility and is not attributable to AFT.
 
Income from operations was $340,710 and $364,107 for the years ended December 31, 2007 and 2006, and represents 5.2% and 7.8% of revenue, respectively.  Income from operations attributable to M&W and FPF was $237,076 and $22,878 in 2007 and 2006, respectively.  After removing the M&W and FPF income, income from operations in 2007 decreased to $103,634, or 1.6% of revenue.  The $237,595 decrease in 2007 is primarily due to the increase in selling, general and administrative expenses observed in 2007.

Interest expense was $132,274 and $53,153 for the years ended December 31, 2007 and 2006, respectively, an increase of $79,121 or 148.9%.  Interest expense relating to M&W and FPF for the years ended December 31, 2007 and 2006 was $68,881 and $13,590, respectively.  The overall increase is due to increased short- and long-term debt borrowings in 2007 relating to the new manufacturing facility and equipment and working capital lines of credit to fund AFT’s increased operations.  Additionally, interest expense increased from the amortization of deferred financing charges totaling $1,351 in 2007.  In 2007, interest expense was partially offset by $2,783 in finance charges to customers.  AFT was either a co-borrower or a guarantor on all of the consolidated company’s debt.

Consolidated income before non-controlling interest in variable interest entities was $211,219 and $310,954 for the years ended December 31, 2007 and 2006, respectively.  The income attributable to M&W and FPF was $168,195 and $9,288 for 2007 and 2006, respectively, and has been subtracted out to arrive at the net income of $43,024 and $301,666 for the years ended December 31, 2007 and 2006, respectively, a decrease of $258,642 or 85.7%.  This decrease is largely due to the 84.8% increase in selling, general and administrative expenses in 2007 as discussed above.

Liquidity and Capital Resources:

AFT’s primary source of liquidity is cash generated from operations and from short-term financing arrangements.  We believe that we will have available resources to meet our liquidity requirements, including debt service, for the remainder of 2008.  If cash flow from operations is insufficient to fund our debt service and other obligations, we may be required to increase our borrowings, reduce or delay capital expenditures, and seek additional capital or refinance our indebtedness.  There can be no assurance, however, that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under revolving credit facilities.

AFT has financed operating cash needs as well as final fixed asset purchases for its new manufacturing facility primarily through the use of short-term borrowings which has contributed to current liabilities exceeding current assets at the end of 2007.

We anticipate increases in our cash needs associated with our new manufacturing facility.  We estimate increases in rental expense for 2008 of $242,000.  Increased cash needs associated with debt service payments related to manufacturing equipment are estimated to $261,000.  Initial costs associated with becoming a public company are expected to be approximately $200,000.  Additional cash needs for employment agreements and income taxes may also be incurred as agreements are established and the company generates profits.

For the Six Months ended June 30, 2008 and 2007.   Operating activities used $515,634 and $87,133 of cash for the six-month periods ended June 30, 2008 and 2007, respectively.  The decrease was largely due to the larger loss in the six months ended June 30, 2008 of $(566,277) compared to a loss for the six months ended June 30, 2007 of $(265,839).  Working capital items also contributed to the net decrease in cash provided from operating
 
 
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activities.  Cash was provided from a decrease in accounts receivable totaling $65,803 for the six months ended June 30, 2008 compared to $120,692 for the six months ended June 30, 2007.  Cash provided from an increase in accounts payable was $82,510 for the six months ended June 30, 2008 compared to $338,529 for the six months ended June 30, 2007.  Offsetting these net increases in cash were smaller uses of cash to increase inventory levels and other current assets.  We also had positive operating cash flow from increases in accrued expenses and a positive impact from non-cash items such as increased depreciation associated with new equipment.

Investing activities used $433,868 of cash and provided $315,837 of cash during the six-month periods ended June 30, 2008 and 2007, respectively.  Investment in manufacturing equipment was the primary use of cash during the six months ended June 30, 2008.  The sale of the former manufacturing facility was the primary cause of cash provided in the six months ended June 30, 2007.
 
Financing activities provided $953,303 of cash and used $233,635 of cash for the six-month periods ended June 30, 2008 and 2007, respectively.  Financing activities for the period ended June 30, 2008 included payments on long-term debt of $142,518 and net payments to stockholders through M&W and FPF totaling $35,000.  These distributions to the stockholders were primarily for income taxes due personally relating to the pass through income from M&W and FPF.  Net short-term bank borrowings and lines of credit were $1,130,821 for the six months ended June 30, 2008.  In comparison, financing activities for the six months ended June 30, 2007 included payments on long-term debt of $248,962 and net payments to stockholders, through AFT and the variable interest entities M&W and FPF, of $218,931.  These uses of cash were partially offset by net short-term borrowings of $234,258.

For the Years Ended December 31, 2007 and 2006.   Operating activities provided $113,673 of cash for the year ended December 31, 2007, while $95,513 of cash was used for the year ended December 31, 2006.  The increase in cash provided from operating activities for 2007, compared to 2006, was due primarily to the significant increases in accounts payable associated with higher purchase volumes supporting increased production activities, longer credit terms from vendors, and receiving some large customer deposits prior to year end.  Increases in non-cash items such as accrued payroll activity associated with increased headcount and increased depreciation driven by the expanded manufacturing facility and equipment were also recorded in 2007, compared to 2006.  The variable interest entities, FPF and M&W, also recorded improved results in 2007, compared to 2006, resulting in additional increases in cash provided from operations.  Revenue increases in 2007 also contributed positively to cash provided from operations through accounts receivable but at a slower rate than 2006 due to several large contracts being supplied in December 2006.  Also, AFT and FPF increased inventory levels to meet growing demand during 2007, compared to 2006, significantly decreasing the total cash provided by operations during 2007.

Investing activities provided $181,722 of cash and used $156,200 of cash over the same periods.  The cash provided by investing activities in 2007 was due to the sale of the prior manufacturing facility by M&W netting $372,670 in proceeds, which was offset by a $190,948 investment in new capital equipment.

Financing activities used $278,855 of cash and provided $238,088 of cash for the years ended December 31, 2007 and 2006, respectively.  Financing activities for 2007 included payments on long-term debt of $399,260 and net payments to stockholders of $234,198 (consisting of AFT payments totaling $90,699 and M&W and FPF payments totaling $143,499).  These distributions to the stockholders were primarily for income taxes due personally relating to the pass through income from AFT, M&W and FPF.  These uses of cash were partially offset by net short-term bank borrowing of $364,613.  In comparison, financing activities for 2006 included payments on long-term debt of $45,479 and net payments to stockholders, through AFT and the variable interest entities M&W and FPF, of $108,863.  These uses of cash were offset by net short-term bank borrowing of $392,430.

In 2007, M&W constructed the new manufacturing facility at Commerce Drive which AFT leases.  Financing for the facility was completed with a $3,000,000 Industrial Revenue Bond issued by the City of Wisconsin Rapids.  This is a 5.50% bond expiring July 2027.  Monthly principal and interest payments are $20,766.  Plant and process equipment for the new facility was financed with two additional $500,000 Industrial Revenue Bonds expiring July 2014.  These bonds carry interest at 5.75%.  Monthly principal and interest payments for each of these bonds is $7,266.  In addition to the $1,000,000 in revenue bonds for equipment, AFT received a $500,000 Note from the City of Wisconsin Rapids for additional equipment purchases.  This note expires April, 2012 and carries interest at 2%.
 
 
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The Industrial Revenue Bond Agreement states that the Industrial Revenue Bonds are secured by all of the assets of AFT, M&W and FPF and that insurance be maintained on the collateral.  The Bond Agreement requires compliance with standard covenants, including financial covenants relating to ratios of tangible net worth, debt service coverage, and total indebtedness to tangible net worth.  In addition, a $4,000,000 key man life insurance policy must be maintained upon the life of Jamie Mancl, our current President.  The Industrial Revenue Bonds become immediately due and payable upon breach of any covenants or representations made by the Bond Agreement and upon other customary events of default.

At December 31, 2007, AFT was not in compliance with various restrictive financial covenants associated with the industrial revenue bonds used to finance the expansion.  The tangible net worth covenant requires AFT to maintain at least $600,000 in net worth.  AFT’s tangible net worth was $477,871 and $331,733 at December 31,  2007 and June 30, 2008, respectively.  The debt service coverage ratio covenant requires AFT to maintain at least 1.25 coverage.  AFT’s debt service coverage ratio was .76 and .10 at December 31, 2007 and June 30, 2008, respectively.  The indebtedness to tangible net worth covenant requires AFT to maintain a ratio of less than 3.5 to 1.0.  AFT’s indebtedness to tangible net worth ratio was 11.90 and 12.24 at December 31, 2007 and June 30, 2008, respectively.  AFT received a waiver letter dated March 28, 2008 on these covenant defaults from our lenders.  The terms of the waiver suspend the covenant requirements through December 31, 2008.  AFT received another waiver letter dated August 26, 2008, which waives these same three covenants through September 30, 2009.  The next calculation date for these covenants will be December 31, 2009, unless the covenants are modifed prior to that date.  AFT and the bank realize that these covenants may need to be renegotiated to meet AFT's future needs and both parties plan to assess this during the 4th quarter of 2008.

In the upcoming year, we plan to finance operations, including equipment purchases and other capital expenditures, with working capital and external financing.  We believe that we will need additional funds in the near term to finance operations and meet revenue, profitability, growth, diversification and other strategic goals for the foreseeable future.  In addition, we continue to evaluate and assess potential strategic acquisition targets.  Cash requirements from any future acquisitions may be substantial; however, we cannot estimate the cash or other consideration that may be required to finance such transactions.  We planned to be able to procure financing upon reasonable terms in order to finance operations and acquisition activity.  However, if we are unable to do so due to unfavorable credit market conditions, or if we do not meet anticipated future revenue goals, we are committed to taking actions necessary to ensure the conservation of adequate cash to continue to finance our operations.

Since December 31, 2007, AFT increased its borrowing under the $500,000 bond with the City of Wisconsin Rapids by $67,673 to fully use the available loan amount.  The borrowing financed additional manufacturing equipment.  On January 3, 2008, AFT secured a short-term bank note for $200,000 at 7.75% interest per annum.  On March 20, 2008, AFT secured another short-term bank note for $200,000.  Both notes were for working capital purposes, are due three months from the date of issuance or upon demand thereafter, carry interest at 7.75% per annum, and are secured by the business assets and receivables and certain customer purchase orders.  On May 1, 2008, AFT entered into a capital lease agreement with Yale Materials Handling for a forklift.  The term of the lease is 60 months with monthly lease payments of $516.

AFT has entered into various operating leases to support operations in 2008.  AFT leases several vehicles to support the Field Services Division as well as office space in Hastings, Michigan.  Total monthly lease payments for these vehicles and office space are $3,273.  AFT leases our manufacturing facility at Commerce Drive, Wisconsin Rapids, Wisconsin from M&W who is considered a variable interest entity.  This lease was established on August 1, 2007 for a 20 year term.  From August 1, 2007 to December 31, 2007, AFT paid $30,000 per month.  Starting on January 1, 2008, the lease calls for monthly payments of $35,000 with an annual adjustment to reflect the changes in the cost of living.  AFT plans to exercise its option to purchase the manufacturing facility from M&W by assuming the related debt and paying the remainder of the purchase price in $500,000 cash and a promissory note.  AFT has obtained a third-party valuation of the property valuing the property at $4,500,000.

To address current cash needs and provide a remedy for the bank covenant violations, we are in the process of raising up to $10 million through a private offering of convertible debentures.

As stated above, if cash flow from operations is insufficient to fund the debt service and other obligations, we may be required to further increase borrowings, reduce or delay capital expenditures, and seek additional capital
 
 
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or refinance the indebtedness.  In May 2008, we received a $300,000 short-term bridge note from a consultant and shareholder to assist with operating cash flow.  If the above actions do not come to fruition in the expected time frame, we may have to take more drastic steps and cut back on operations and curtail expenses.

Summary of AFT’s Significant Accounting Policies:

The discussion and analysis of financial condition and results of operations are based on AFT’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S.  While AFT’s significant accounting policies are described in more detail in the financial statements, we believe the following accounting policies to be critical to the judgments and estimates used in preparation of the financial statements:
 
Use of Estimates:   The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities.  Management reviews its estimates on an on-going basis and bases estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about these estimates under different assumptions or conditions.

Principles of Consolidation and Basis of Presentation:   Financial results are consolidated in accordance with Financial Accounting Standards Board (“ FASB ”) Interpretation No. 46R, Consolidation of Variable Interest Entities (“ FIN 46R ”), which requires a company to consolidate entities determined to be variable interest entities (“ VIEs ”), for which AFT is the VIE’s primary beneficiary.  For the periods covered by the financial statements, AFT has determined that M&W and FPF are VIEs and that we are the primary beneficiary of such VIEs, as defined by FIN 46R.  M&W owns the manufacturing facility which AFT leases and FPF was a wholesale distributor of fiberglass pipe fittings to AFT and other third-party companies.  Our majority stockholder is the 100% owner of M&W and FPF, which results in our management holding a significant influence over their continuing operations.  Although AFT holds no legal ownership in the VIEs, the VIEs could not support and finance their operations on their own as suggested by AFT’s guarantee of all of the debt of the VIEs, and due to the fact that AFT would likely absorb any expected future losses.  As such, AFT concluded that it is required to consolidate the results of operations of the VIEs.  As of June 30, 2008 and December 31, 2007, AFT had not funded any losses of the VIEs.

The financial statements and footnotes have been presented on a consolidated basis to include its variable interests in M&W and FPF.  All significant intercompany accounts and transactions have been eliminated in consolidation.

Trade Accounts Receivable:   Trade accounts receivable are recorded at the invoiced amount.  The allowance for doubtful accounts is AFT’s best estimate of the amount of probable credit losses in existing accounts receivable.  The allowance is determined based on historical write-off experience and is reviewed monthly.  Individual accounts with past due balances over 90 days are specifically reviewed for collectability.  All other balances are reviewed on a pooled basis.  Account balances are charged against accounts receivable, as bad debt, after all means of collection have been exhausted and the potential for recovery is considered remote.  Finance charges are accrued monthly, but not recognized on past due trade receivables until management determines that such charges will be collected.  Standard terms of sale are Net 30 days, however, due to competitive market conditions, customers in certain market segments such as pulp & paper are requiring lengthened credit sale terms such as 45 or 60 days.  Moving forward, AFT anticipates that the mix of customers in the markets it currently serves will remain similar to historic levels and thus the collection period for receivables for these customers will also remain at similar levels.  As AFT pursues larger contracts in new markets, it intends to seek pre-payments and progress payments attempting to shorten overall collection periods for receivables.

Inventories:   Inventories are stated at the lower of cost or market, with cost determined on the first-in, first-out (FIFO) basis.  Allowances are recorded for estimated excess and obsolete inventories based primarily on forecasts of product demand and estimated production requirements.

Property and Equipment:   Property and equipment are stated at cost.  Depreciation is provided on the straight-line method over the estimated useful lives of the respective assets.  Maintenance and repairs are charged to expense as incurred; major renewals and betterments are capitalized.  As items are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in operating income.

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The estimated useful lives for computing depreciation are as follows:

 
Years
Building
40
Building and land improvements
15
Computer equipment
3 to 5
Manufacturing equipment
5 to 10
Furniture and office equipment
5 to 10
Vehicles and trailers
5
 
Intangible Assets:   Intangible assets are stated at cost.  They comprise a non-compete agreement and customer list acquired through an asset purchase acquisition in 2005.  Also, included is deferred financing costs incurred with the bond financing for the construction of the new manufacturing facility in 2007.  The non-compete agreement is being amortized on the straight-line method over its 3-year life.  The customer list is being amortized 33% per year based on a discounted cash flow analysis.  Financing costs are amortized over the life of the related bonds ranging from 7 to 20 years, with the amortization being recorded to interest expense.

Impairment of Long-Lived Assets:   The recoverability of intangible assets and other long-lived assets is assessed periodically or whenever adverse events or changes in circumstances or business climate indicate that the previously anticipated expected cash flows warrant a reassessment.  When such reassessments indicate the potential of impairment, all business factors are considered and, if the carrying value of such intangible assets and other long-lived assets are not likely to be recovered from future undiscounted operating cash flows, they will be written down for financial reporting purposes to their fair values.

Revenue Recognition:   AFT’s manufacturing processes include open molding, resin transfer molding, filament winding, vacuum infusion, and hand lay-up of fiberglass reinforced composites materials.  The average length of time for completion of contracts is approximately two weeks with a range of 1 day to several months.

AFT derives revenue primarily from the sale of manufactured products (tanks, piping, & ductwork), installation of those tanks on occasion and service/repair.  In accordance with SEC Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”), revenue is recognized when persuasive evidence of an arrangement exists, the price is fixed and determinable, transfer of title has occurred, services have been rendered or delivery has occurred per contract terms and collection of the related receivable is reasonably assured.  At times, customer deposits and other receipts are received and are deferred and recognized when earned.  Shipping and handling costs are classified as a cost of goods sold component.

Most of the products are sold without installation services included.  Revenue for product only sales is generally recognized at the time of shipment and if all other contractual obligations have been satisfied.  When a combination of products and installation services is provided, the arrangement is evaluated under Emerging Issues Task Force Issue (“EITF”) No. 00-21 “Revenue Arrangements with Multiple Deliverables.”  Most installation work is generally done in a short period of time (less than 30 days) and the corresponding revenue is recorded upon the completion of the installation and all contractual obligations have been met.

For any service/repair, most work is performed on a time and material basis and revenue is recognized upon performance.

AFT generally provides a standard one year warranty for product and service sales.  Accruals necessary for product warranties are estimated based upon historical warranty costs which in the past have been immaterial to the financial statements as a whole.  As of June 30, 2008, no accrual for warranty expense has been recorded due to immateriality.

Income Taxes:   AFT elected under the Internal Revenue Code to be an S-Corporation.  In lieu of corporation income taxes, the stockholders of an S-Corporation are taxed on their proportionate share of taxable income.  No provision or liability for federal or state income taxes is provided in the audited financial statements.

Effective January 1, 2008, AFT terminated its S-Corporation election.  It is now taxed as a C-Corporation and will be subject to income and deferred taxes on future taxable income or losses.

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As previously noted, AFT consolidates financial results under the provisions of FIN 46R.  For income tax purposes, however, AFT is not considered a consolidated entity.  As a result, income generated by M&W and FPF, as well as any losses recognized, are excluded from AFT’s net income that is ultimately reported in corporate tax returns.
 
Effect of recently issued accounting standards:

In December 2007, the FASB issued Statement of Financial Accounting Standards (“ SFAS ”) No. 141R, Business Combinations (“ SFAS 141R ”), which establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree.  SFAS 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  SFAS 141R is effective for fiscal years beginning after December 15, 2008.  Early adoption is not permitted.  We are currently evaluating the effect of the adoption of SFAS 141R, but do not presently anticipate it will have a material impact on our consolidated financial position or results of operations.

In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 (“ SFAS 160 ”), which establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary.  It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements.  SFAS 160 is effective for fiscal years beginning after December 15, 2008.  We have evaluated the effect of the adoption of SFAS 160, but do not presently anticipate it will have a material effect on our consolidated financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115 (“ SFAS 159 ”).  This standard permits an entity to choose to measure many financial instruments and certain other items at fair value.  This standard is effective for financial statements issued for fiscal years beginning after November 15, 2007.  AFT adopted the provisions of SFAS 159 on January 1, 2008.  It did not elect to measure any financial assets or liabilities using the fair value option of SFAS 159.  We will assess, at each measurement date, whether to use the fair value option on any future financial assets or liabilities as permitted pursuant to the provisions of SFAS 159.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“ SFAS 157 ”).  This standard clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability.  Additionally, it establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.  In February 2008, the FASB issued FASB Staff Position No. 157-2 (“ FSP 157-2 ”), which delayed the effective date by which companies must adopt the provisions of SFAS 157.  FSP 157-2 defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years.  The adoption of SFAS 157 is not anticipated to have a material impact on our financial position, results of operations, or cash flows.

Risks of our Business

The actual results of the combined company may differ materially from those anticipated in these forward-looking statements.  We operate in a market environment that is difficult to predict and that involves significant risks and uncertainties, many of which will be beyond our control.  Additional risks and uncertainties not presently known to us, or that are not currently believed to be important to you, if they materialize, also may adversely affect the combined company.

While we are beyond the development stage, we are a company with limited operating history that makes it difficult to predict, reliably, future growth and operating results.   We have not demonstrated that we can: (i) expand our manufacturing capacity in a manner that will enable us to remain profitable; (ii) ensure the steady supply of raw materials that will enable us to carry out our commercial activities; (iii) establish many of the business functions necessary to expand existing operations and enter new markets as defined by our four-part growth
 
 
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strategy, including sales, marketing, administrative and financial functions, and establish compliant financial controls; or (iv) respond effectively to competitive pressures.

We have had limited profitability since inception.   Since 1995, we have generated limited profits.  Our future operating profits are uncertain, and we may never sustain profitable operations.
 
Our current capital needs are significant.   Cash generated by operations is currently insufficient to meet our operating needs and debt service obligations.  We have significant contractual obligations to make payments on our debts and leases.  For several years, we have relied on external sources of financing to meet our ongoing obligations.  There can be no assurance that continued financing will be available to meet our significant obligations.  If we are unable to meet our current contractual obligations, it may be forced to seek protection in bankruptcy or receivership proceedings, and may be forced to liquidate assets to pay our obligations.
 
We plan to invest in additional plant and equipment and expand into new markets and need significant additional capital to do so.  We have pursued and plan to continue our pursuit of financing to expand our operations.  We cannot provide any assurance that we will successfully raise additional capital and we may not be able to meet our contractual obligations, expand our operations, or pursue our articulated business plan.

Our future capital needs are likely to be significant.   We will need to raise significant amounts of additional funds in the future.  These funds may not be available on acceptable terms.  For the past few years, we have relied on external sources of financing to meet our capital needs.  There is not sufficient cash to meet our capital requirements to expand production capabilities and meet the goals defined in our growth strategy within existing markets and across new markets.  We will seek additional funds from public and/or private offerings of debt and/or equity securities, borrowings under credit lines or other sources.

Our future capital requirements will depend on many factors, including:
·    
revenues generated by sales of manufactured products;
·    
costs required to develop new manufacturing processes for new sectors;
·    
expenses incurred in manufacturing and selling products;
·    
costs associated with anticipated plant expansions;
·    
other costs associated with capital expenditures; and
·    
the number and timing of any acquisitions or other strategic transactions.

As a result of these factors, it is likely that we will need to raise additional funds, and these funds may not be available on favorable terms, or at all.  Furthermore, if we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution, and new equity or debt securities may have rights, preferences and privileges senior to those of existing stockholders.  If we cannot raise funds on acceptable terms, we may not be able to develop or enhance our products, expand our product offerings, execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated customer requirements.

Our principal shareholders have the ability to exercise control over our affairs and management.   As a result of the Share Exchange, our principal shareholder owns approximately 60% of our common stock and has significant influence over matters requiring approval by our shareholders.  Among other things, our majority shareholder has the ability to elect all of the members of our board of directors and exercise control over our affairs and management.

Our success will depend on our ability to attract and retain key personnel and technical staff.   We believe future success will depend on our ability to manage our growth successfully, including attracting and retaining skilled personnel for our manufacturing operations.  Hiring qualified management and technical personnel may be difficult due to the limited population base surrounding Wisconsin Rapids, Wisconsin.  If we fail to attract and retain personnel, particularly management and technical personnel, we may not be able to continue our planned operations and expansions.

Our business depends upon good relations with employees.   We may experience difficulties in maintaining appropriate relations with unions and employees.  About 41% of our employees are represented by
 
 
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labor unions.  The risk of labor disputes, work stoppages or other disruptions in production could adversely affect us.  If we cannot successfully negotiate or renegotiate our collective bargaining agreements or if the negotiations take an excessive amount of time, we may be faced with a prolonged work stoppage.  Any work stoppage could have a material adverse effect in the productivity and profitability of our manufacturing facility or in our operations as a whole.  We have not experienced any work stoppages due to employee relations in our history.
 
If we do not effectively manage our growth, our business resources may become strained and our results of operations may be adversely affected.   We expect to increase our total employee headcount as we continue to expand our business.  This growth will be proportional to our expansion of our manufacturing capabilities.  This may provide challenges to our organization and may strain management and operations.  We may misjudge the amount of time or resources that will be required to effectively manage any anticipated or unanticipated growth in the business or we may not be able to attract, hire and retain sufficient personnel to meet our needs.  If we cannot scale our business growth appropriately, maintain control over expenses or otherwise adapt to anticipated and unanticipated growth, our business resources may become strained, we may not be able to deliver proposed products in a timely manner and our results of operations may be adversely affected.

We are subject to potential product liability and other claims and it may not have the insurance or other resources to cover the costs of any successful claim.   Defects in our products could subject it to potential product liability claims that our products caused some harm to the human body.  Our product liability insurance may not be adequate to cover future claims.  Product liability insurance is expensive and, in the future, may not be available on terms that are acceptable, if it is available at all.  Plaintiffs may also advance other legal theories supporting their claims that our products or actions resulted in some harm.  A successful claim brought against us in excess of any insurance coverage that it has could significantly harm our business and financial condition.  We have not experienced any product liability claims in its history.

Demand for and supply of our products and services may be adversely affected by several factors, some of which cannot be predicted or controlled, that could adversely affect our results of operations.   Several factors may affect the demand for and supply of our products and services, including:
 
·    
economic downturns in the significant markets that we serve;
·    
changes in federal mandates that encourage rapid growth in the markets that we serve;
·    
product obsolescence, technological changes that unfavorably alter the value/cost proposition of our products and services;
·    
competition from existing and unforeseen composites manufacturers;
·    
declines in general economic conditions or reductions in industrial production growth rates, both domestically and globally, which could impact our customers ability to pay amounts owed;
·    
changes in environmental regulations that would limit our ability to sell products and services in specific markets; and
·    
inability to obtain raw materials or supply products to customers due to factors such as supplier work stoppages, supply shortages, plant outages or regulatory changes that may limit or prohibit overland transportation of certain materials and exogenous factors, like severe weather.

If any of these factors occur, the demand for and supply of our products and services could suffer, which would adversely affect our results of operations.

Our manufacturing operations are subject to hazards and other risks associated with composites manufacturing and the related storage and transportation of raw materials, products and wastes.   Our manufacturing operations are subject to the usual hazards and risks associated with composites manufacturing and the related storage and transportation of raw materials, products and wastes.  These hazards and risks include, but are not limited to:
 
·    
explosions, fires, inclement weather and natural disasters;
·    
mechanical failure resulting in protracted or short duration unscheduled downtime;
·    
regulatory changes that affect or limit the transportation of raw materials;
·    
inability to obtain or maintain any required licenses or permits;
 
 
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·    
interruptions and environmental hazards such as discharges or releases of toxic or hazardous substances or gases into the environment or workplace; and
·    
storage tank leaks or other issues resulting from remedial activities.

The occurrence of any of these operating problems at our facility may have a material adverse effect on our productivity and profitability, during and after the period of these operating difficulties.  These operating problems may also cause personal injury and loss of life, severe damage to or destruction of property and equipment and environmental damage.  We are subject to present and potential future claims with respect to workplace exposure, workers’ compensation and other matters.  Although we maintain property and casualty insurance of the types and in the amounts that we believe are customary for the industry, we are not fully insured against all potential hazards that are incident to the business.
 
Extensive environmental, health and safety laws and regulations impact our operations and assets, and compliance with these regulations could adversely affect our results of operations.   Our operations on our real property are subject to extensive environmental, health and safety laws and regulations at the national, state and local governmental levels.  The nature of our business exposes it to risks of liability under these laws and regulations due to the production, storage, transportation, recycling or disposal and/or sale of materials that can cause contamination or personal injury if they are released into the environment or workplace.  Environmental laws may have a significant effect on the costs of these activities involving raw materials, finished products and wastes.  We may incur substantial costs, including fines, damages, criminal or civil sanctions, remediation costs, or experience interruptions in our operations for violations of these laws.

Also, federal and state environmental statutes impose strict, and under some circumstances, joint and several liability for the cost of investigations and remedial actions on any company that generated environmental waste, arranged for disposal of the waste, transported the waste to the site or selected the site, as well as on the owners and operators of these sites.  Any or all of the responsible parties may be required to bear all of the costs of clean up, regardless of fault or legality of the waste disposal or ownership of the site, and may also be subject to liability for natural resource damages.  We may incur substantial costs if it is found that we have generated environmental waste at our manufacturing facility, our previous manufacturing facility, or during the transport to or installation of our products at client sites.  It is possible that we will be identified as a potentially responsible party for identified waste sites in the future, which could result in being assessed substantial investigation or cleanup costs.

We accrue costs for environmental matters that have been identified when it is probable that these costs will be required and when they can be reasonably estimated.  However, accruals for estimated costs, including, among other things, the ranges associated with accruals for future environmental compliance and remediation, may be too low or we may not be able to quantify the potential costs.  We may be subject to additional environmental liabilities or potential liabilities that have not been identified.  We expect to continue to be subject to increasingly stringent environmental, health and safety laws and regulations.  We anticipate that compliance with these laws and regulations will continue to require capital expenditures and operating costs, which could adversely affect our results of operations or financial condition.

We face competition from other composites manufacturing companies, which could adversely affect its sales and financial condition.   We actively compete with companies that produce the same or similar products, and in some instances with companies that produce different products that are designed for the same end uses.  We encounter competition in price, delivery, service, performance, product innovation, and product recognition and quality, depending on the product involved.

Many of our competitors are larger, which makes them more efficient, thereby reducing their cost of materials and permitting them to be more competitive.  Their increased size permits them to operate in wider geographic areas and enhance their ability to compete in other areas such as research and development and customer service, which could also reduce our profitability.

We expect that competitors will continue to develop and introduce new and enhanced products, which could cause a decline in the market acceptance of our products.  In addition, our competitors could cause a reduction in the selling prices of some of our products as a result of intensified price competition.  Competitive pressures
 
 
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could also result in the loss of major customers.  An inability to compete successfully could have an adverse effect on our results of operations, financial condition and cash flows.

We may also experience increased competition from companies that offer products based on alternative technologies and processes that may be more competitive or better in price or performance, causing us to lose customers and result in a decline in sales volume and earnings.  Additionally, some of our customers may already be or may become large enough to justify developing in-house production capabilities.  Any significant reduction in customer orders as a result of a shift to in-house production could adversely affect our sales and operating profits.
 
Risks Related to our Common Stock

An active trading market for our common stock may never develop and you may have no ability to sell the shares.   There is a limited public trading market for our common stock.  The Financial Industry Regulatory Authority Inc. (“ FINRA ”) has approved the entry of a price quotation for our common stock on the OTC Bulletin Board system and our symbol is ENCC.  There can be no assurance that a market for our common stock will be established or that, if established, a market will be sustained.  Therefore, if you purchase shares of our common stock you may be unable to sell them.  Accordingly, you should be able to bear the financial risk of losing your entire investment.

The OTC Bulletin Board is not an exchange and, because trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on an exchange or NASDAQ, you may have difficulty reselling any of the shares that you may purchase.  Even after the Share Exchange, we have fewer than 30 stockholders of record.  With so few holders, an active trading market may never develop in our common stock and it may be difficult or impossible to sell your shares.

Future financing transactions could result in dilution.   In order to raise additional funds for expansion and operating needs, we may sell restricted stock, options, warrants, and convertible securities and/or convertible debt to investors in public or private placements of such securities.  Since any stock sold in a private placement will be restricted, the stock may be sold at a discount to market prices, and the exercise price of the warrants or options sold in like manner is likely to be at or even lower than market prices.  These transactions will cause dilution to existing stockholders.  Also, from time to time, stock or options may be issued to officers, directors, employees, or consultants with prices equal to market.  Exercise of in-the-money options and warrants will result in dilution to existing stockholders.  The amount of dilution will depend on the spread between the market and exercise price, and the number of shares involved.  In addition, such shares would increase the number of shares in the “public float” and could depress the market price for our common stock.

Our common stock is subject to penny stock regulation that may affect the liquidity for our common stock.   The Securities and Exchange Commission has adopted rules that regulate broker or dealer practices in connection with transactions in penny stocks.  Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange system).  The penny stock rules require a broker or dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the Securities and Exchange Commission that provides information about penny stocks and the nature and level of risks in the penny stock market.  The broker or dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker or dealer, and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account.  The penny stock rules also require that prior to a transaction in a penny stock not otherwise exempt from such rules, the broker or dealer must make a special written determination that a penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.

These disclosure requirements may have the effect of reducing the level of trading activity in any secondary market for our stock that becomes subject to the penny stock rules, and accordingly, stockholders of our common stock may find it difficult to sell their securities, if at all.

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Management

Our management consists of the following:
 
Name
Age
Position
Samuel W. Fairchild
54
Chief Executive Officer and Director
Jamie Lee Mancl
36
President and Director
Jennifer Lynn Mancl
33
Vice President and Director
Jeffrey S. Keuntjes
43
Controller
Kenneth A. Iwinski
45
General Counsel and Secretary
Daniel P. Wergin
66
Director
Thomas J. Klismith
49
Director

The term of office of each director is expected to end at the next annual meeting of our stockholders or when such director’s successor is elected and qualified.  The term of office of each officer ends at the next annual meeting of our board of directors, expected to take place immediately after the next annual meeting of stockholders, or when such officer’s successor is elected and qualified.  We are not aware of any material proceedings to which any of the directors, or any associate of any such director, is a party adverse to us or has a material interest adverse to us or to any of our subsidiaries.

Jamie Lee Mancl is married to Jennifer Lynn Mancl.  Other than the Mancls, there are no family relationships between any of our directors and officers.  During the last five years, none of the listed officers or directors have (i) had any bankruptcy petition filed by or against any business of which such person was an officer; (ii) had any conviction in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (iii) been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or (iv) been found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law.

Samuel W. Fairchild – Chief Executive Officer and Director.   Mr. Fairchild has served as a director of AFT since April 2008 and as Chief Executive Officer since October 2007.  Previously, he served as Chief Executive Officer and Director of Tower Tech Holdings (NASDAQ: TWRT), the predecessor to Broadwind Energy (BWEN), from 2006 – 2007, where he led the growth in market capitalization from $40 million to nearly $1 billion through process restructuring, market repositioning, capital formation and responsive corporate governance.  Mr. Fairchild has been the President of the Tadpole Group, an investment portfolio-holding company focused on harvesting value from transformation, since August 2004.  He has also been Managing Director of Theseus Capital Partners, an investment advisory firm, since August 2004.  Prior to founding Theseus in 2004, Mr. Fairchild co-led the Global Government, Transport & Infrastructure Group of PA Consulting Group, a role he assumed in 1999 as a result of PA’s acquisition of GKMG Consulting Services, a strategic consulting firm he founded in 1992.  During that period, he also served as “shadow CEO” of Air New Zealand following the demise of its wholly-owned subsidiary, Ansett Airlines, where he led the Crown’s acquisition of most of the outstanding shares and the comprehensive turnaround of the airline.  He has also served in the White House as senior advisor to President Reagan and Vice President Bush for transportation policy, and was George Bush’s Acting Assistant Secretary of Transportation for Policy and International Affairs.  Following his government service, Mr. Fairchild was a member of the management group at the Carlyle Group, where he helped to establish BDM International’s transportation group before BDM was sold to TRW, Inc.  Since May 1996, Mr. Fairchild has been the Chairman of the Board of Schiphol North America, the owner of JFK’s $1.4 billion Terminal Four and the international arm of Amsterdam Airport’s Schiphol Group.

Jamie Lee Mancl – President and Director.   Mr. Mancl has served as President and as a director of AFT since its inception in January, 2005.  From 1995 to January 2005, he owned and operated M&W Fiberglass, LLC, the predecessor company to AFT.  He is also the owner of Fiberglass Piping & Fitting Company, a firm he founded in 2006.  Mr. Mancl has an extensive background managing success in the composites industry.  From 1989 to 1995, he served in various management positions at Industrial Fiberglass.  Mr. Mancl has a successful track record managing the day-to-day operations of a growing composites fabricator, and is an industry-recognized expert in composites.

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Jennifer Lynn Mancl – Vice President and Director.   Mrs. Mancl has served as Vice President of AFT since its inception in January, 2005 and as a director since April 2008, where she has been responsible for all administrative processes, marketing and external affairs.  From 1998 to 2003, Mrs. Mancl worked for Stora Enso North America, where she gained plant floor experience in the pulp and paper industry as well as considerable experience in purchasing and negotiations.  In 2002, Mrs. Mancl earned a B.A. degree in Business Administration and Marketing from Lakeland College in Wisconsin.
 
Jeffrey S. Keuntjes – Controller.   Mr. Keuntjes has served as Controller of AFT since June, 2007.  From 2001 to June, 2007, he served as a Senior Business Analyst for Domtar Industries, a pulp and paper manufacturer in Wisconsin.  He previously served as a Controller for Stevens Point Area Catholic Schools from 1998 to 2001.  Mr. Keuntjes’ background includes 19 years of progressively more responsible financial management responsibilities.  He is a member of the Institute of Management Accountants, has earned CSOX certification from the Sarbanes-Oxley Institute and holds a BA and an MBA from the University of Wisconsin, Madison.
 
Kenneth A. Iwinski – General Counsel and Secretary.   Mr. Iwinski has served as General Counsel and Secretary of AFT since April 2008.  From May 2007 until April 2008, Mr. Iwinski was involved in the private practice of law.  From September 2006 to May 2007, he served as Managing Member and Counsel for Sun Prairie Solutions Group, LLC, an early stage aseptic manufacturing business focused on providing national production and distribution of functional beverages through a joint venture with a global branded food company.  From 1998 to May 2006, Mr. Iwinski served as Vice President - Legal and Secretary for Northland Cranberries, Inc., a publicly traded and vertically integrated food production, processing and sales business.  From June 2006 to September 2006, Mr. Iwinski continued to provide legal services to Northland Cranberries, Inc. as an independent consultant.  From 1992 until he joined Northland, Mr. Iwinski was an attorney with the business law firm of Meissner Tierney Fisher & Nichols, S.C., in Milwaukee, Wisconsin.  In addition to his comprehensive business law experience, Mr. Iwinski has significant experience in human resources, corporate governance, compliance and risk management.

Daniel P. Wergin – Director .  Mr. Wergin has served in as a director of AFT since April 2008, following his resignation from the Board of Broadwind Energy. (NASDAQ: BWEN).  Mr. Wergin was a founder of Broadwind’s predecessor company, Tower Tech Holdings (NASDAQ:TWRT), and the company’s first Chief Financial Officer.  He has also been the President of Choice, Inc., a real estate investment and development company based in Manitowoc, Wisconsin, since 1970.  Mr. Wergin has specialized in real estate development, leasing, and 1031 exchanges.  He has been a member of the National Association of Realtors and its Certified Commercial Investment Division since 1975.

Thomas J. Klismith – Director .  Mr. Klismith has served as a director of AFT since April 2008.  Mr. Klismith has been a Certified Public Accountant since 1984 an in 1988 he founded Klismith Accounting & Tax Group, which provides accounting, tax planning, software consulting and financial advisory services to individuals and businesses in central Wisconsin.  Mr. Klismith has significant experience in tax planning and preparation, financial reporting, business budgeting and forecasting, financial, estate and retirement planning and business consulting.  Mr. Klismith is a member of both the American and Wisconsin Institutes of Certified Public Accountants.

Director Indemnification

Under the corporate laws of the State of Nevada and our Amended and Restated Articles of Incorporation, we have broad powers to indemnify our directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the “ Securities Act ”).  Our Amended and Restated Bylaws also provide for mandatory indemnification of our directors and executive officers, and permissive indemnification of our employees and agents, to the fullest extent permissible under Nevada law.  Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

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Conflicts of Interest and Related Party Transactions

Our officers and directors are now and may in the future become stockholders, officers or directors of other companies that may be engaged in business activities similar to ours.  Accordingly, direct conflicts of interest may arise in the future with respect to such individuals acting on our behalf or other entities.  Moreover, additional conflicts of interest may arise with respect to opportunities which come to the attention of such individuals in the performance of their duties or otherwise.  We do not currently have a right of first refusal pertaining to opportunities that come to management’s attention insofar as such opportunities may relate to our business operations.

The officers and directors are, so long as they remain officers or directors, subject to the restriction that all opportunities contemplated by our plan of operation which come to their attention, either in the performance of their duties or in any other manner, will be considered opportunities of, and be made available to our Company.  A breach of this requirement will be a breach of the fiduciary duties of the officer or director.

All future affiliated transactions will be made or entered into on terms that are no less favorable to us than those that can be obtained from any unaffiliated third party.  A majority of the independent, disinterested members of our board of directors will approve future affiliated transactions.
 
Jamie L. Mancl.   Prior to the Share Exchange, Mr. Mancl was the majority stockholder of AFT and, with his wife, is now our majority stockholder.  He owns 100% of M&W, which owns and leases the manufacturing plant to AFT.  He also owns 100% of FPF, which is a distributor of fiberglass piping and fitting products.  AFT purchases products from FPF for use in the manufacture of its products.

The manufacturing facility lease with M&W was entered into on August 1, 2007, has a term of 20 years and provides for a current monthly rent of $35,000 subject to annual adjustments based on the consumer price index.  M&W is responsible for maintenance of the structural components of the facility and we are responsible for insurance, utilities, taxes, and certain repairs and maintenance.  Total rent paid to M&W during 2007 was $178,000 and total rent paid during the first half of 2008 was $210,000.  After deductions for depreciation, interest and other expenses, M&W’s net profit from the lease during 2007 and the first half of 2008 was $107,191 and $83,178, respectively.  AFT has an irrevocable option to purchase the facility and the land for $4,500,000 which expires June 18, 2009.  The purchase price is based on an independent third party appraisal and AFT intends to exercise the option prior to expiration.  The purchase is intended to be paid primarily through our assumption of related debt and payment of $500,000 in cash and/or a promissory note.

During 2007 and 2006, we purchased products from FPF totaling $143,448 and $3,836, respectively.  During the first half of 2008, FPF sales to AFT totaled $61,232.  The gross profit on sales made to us during 2007 and 2006 were $35,165 and $811, respectively, and the gross profit on sales during the first half of 2008 totaled $12,338.  The board of directors has reviewed the related party transactions with FPF and determined it is in its best interest to continue to purchase products from FPF at this time given their high quality, the limited availability of such products from other suppliers at a competitive price and the costs to produce or import comparable products; provided, however, that such transactions are undertaken in good faith and on such terms and conditions as are fair.  On October 13, 2008, we entered into a supply contract with FPF whereby AFT will purchase FPF’s products at FPF’s cost.

M&W Fiberglass, LLC.   M&W, AFT, Jamie Mancl and Jennifer Mancl are co-borrowers under a Bond Agreement with the City of Wisconsin Rapids and Nekoosa Port Edwards State Bank (“ Bank ”) pursuant to which tax-exempt industrial revenue bonds in the amount of $4,000,000 were issued by the City (“ IRB Debt ”), $3,000,000 of which was used for the purpose of financing the construction of the manufacturing facility owned by M&W and leased to AFT and $1,000,000 of which was used for the purpose of financing the acquisition of equipment owned by AFT and installed at the facility.  In connection with the issuance of the IRB Debt, AFT and the Bank entered into (i) a Credit Agreement pursuant to which AFT is obligated as a co-borrower, together with M&W, Jamie Mancl and Jennifer Mancl, to repay the IRB Debt and (ii) a Security Agreement pursuant to which AFT provided all of its assets as collateral to secure repayment of the IRB Debt.  As described above, AFT has an option to purchase the manufacturing facility from M&W which it intends to exercise prior to expiration of the option.

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Fiberglass Piping & Fitting Company.   FPF previously operated its business out of the same manufacturing facility that AFT leases from M&W.  FPF occupied approximately 1,000 square feet of the facility on a rent free basis.  The value of the space provided during 2007 and the first half of 2008 based on the rental payments made to M&W was approximately $3,200 and $2,877, respectively.  As of October 14, 2008, FPF has moved its operations to an offsite location.

FPF obtained debt financing from the Bank to buy inventory that was secured, in part, by guarantees and assets of AFT.  The outstanding debt financing arrangements of FPF that were secured by guarantees and assets of AFT are business notes issued by the Bank as follows:
 
Date Issued
Interest Rate
Principal Balance
4/16/2007
8.25%
$79,979
6/28/2007
8.25%
80,000
9/28/2007
8.25%
150,000
3/28/2008
7.75%
62,000
5/2/2008
8.25%
18,000
5/8/2008
8.25%
72,000
7/25/2008
8.25%
260,000        
Total
 
$721,979
 
As of October 9, 2008, AFT was released by Bank as a guarantor on all of FPF’s debts and its assets no longer serve as collateral for such debts.

Klismith Accounting and Tax Group.   Thomas J. Klismith has provided tax, accounting, and business consulting services to AFT, FPF and M&W for several years. The following table sets forth payments made and amounts owed to Mr. Klismith’s firm during the years ending and as of December 31, 2007 and 2006:
   
December 31,
 
   
2007
   
2006
 
Payments made by:
           
AFT
  $ 46,926     $ 32,644  
FPF
    1,465       -  
M&W
    2,005       -  
Total
  $ 50,396     $ 32,644  
                 
Amounts owed by:
               
AFT
  $ 7,480     $ 6,395  
FPF
    2,350       -  
M&W
    -       -  
Total
  $ 9,830     $ 6,395  

Executive Compensation

The following table sets forth information regarding the remuneration of AFT’s executive officers that earned in excess of $100,000 per annum during any part of the last two completed fiscal years:

Summary Compensation Table
Name and Principal Position
Fiscal Year
Salary
($)
Bonus
($)
Option Awards
($)
All Other Compensation
($)
Total
($)
Jamie Lee Mancl,
President and Director
2007
$78,946
-
-
21,182 (1)
$100,128
2006
$63,923
-
-
18,316 (2)
$82,239
Jeffrey S. Keuntjes,
Controller
2007
$33,923
-
-
-
$33,923
2006
-
-
-
-
-
(1)  
Other compensation for Mr. Mancl during 2007 includes: (i) $13,791 paid for health insurance; (ii) $5,000
 
 
25

 
  health savings account contribution; and (iii) $2,391 Simple IRA contribution.  Other income during 2007 excludes $187,090 consisting of: (i) $107,191of net profit to M&W from the lease of the manufacturing facility to AFT; (ii) $35,165 of gross profit to FPF from the sale of fiberglass piping and fitting products to AFT; (iii) $1,707 representing the value of space within the AFT manufacturing facility which is occupied by FPF on a rent free basis; and (iv) $43,024 of pass-through income attributable to Mr. Mancl during 2007 as a result of his ownership and the S-Corporation status of AFT.
(2)  
Other compensation for Mr. Mancl during 2006 includes: (i) $11,587 paid for health insurance; (ii) $5,000 health savings account contribution; and (iii) $1,918 Simple IRA contribution.  Other income during 2006 excludes $302,477 consisting of: (i) $811 of gross profit to FPF from the sale of fiberglass piping and fitting products to AFT; and (ii) $301,666 of pass-through income attributable to Mr. Mancl during 2006 as a result of his ownership and the S-Corporation status of AFT.
 
We do not have any outstanding unexercised options or equity incentive awards.

The following table sets forth information regarding the remuneration of AFT’s directors, other than those already mentioned in the Summary Compensation Table, during the last completed fiscal year:
 
Director Compensation Table
Name
Fees Earned or Paid in Cash
Stock Awards
Option Awards
All Other Compensation
Total
($)
($)
($)
($)
($)
Samuel W. Fairchild
-
-
-
-
-
Jennifer Lynn Mancl
$39,024
-
-
$1,171 (1)
$40,195
Daniel P. Wergin
-
-
-
-
-
Thomas J. Klismith
-
-
-
-
- (2)
(1)  
Other compensation for Mrs. Mancl during 2007 consisted of $2,391 in Simple IRA contribution.
(2)  
Mr. Klismith did not earn any compensation for his services as a director during 2007.  However, Mr. Klismith’s firm, Klismith Accounting and Tax Group, was paid $50,396 in 2007 for accounting, tax and business consulting services rendered to AFT, FPF and M&W during that period.

None of our directors receive any compensation for their respective services as directors.  They have all agreed to serve without compensation until authorized by our board of directors.  We expect to consider and authorize appropriate compensation for our directors in the near future.

Market Price of the Registrant’s Common Equity and Related Stockholder Matters

Our common stock is currently quoted in the OTC Bulletin Board (“OTCBB”) under the symbol “ENCC.”  It previously traded under the symbol of “LPME” on the OTCBB.  Although our common stock is quoted in the OTCBB, there is no established trading market and it has traded on a very limited basis.  Our common stock has not had any trading volume since July 16, 2007 and, as a result, we have not provided historical bid and ask prices for the common stock.

Holders and Dividends

After the Share Exchange, there are twenty-nine (29) holders of our common stock.  We have not paid cash dividends to date and have no plans to pay any cash dividends in the immediate future.  On October 29, 2007, we declared a 14-for-1 stock dividend to our stockholders of record as of November 14, 2007, increasing our outstanding common stock to 33,000,000 shares.

Recent Sales of Unregistered Securities

On October 14, 2008, we issued 28,750,000 shares of common stock to three persons in exchange for all of the issued and outstanding shares of AFT.  Also, Diana L. Hassan cancelled 21,750,000 shares of common stock.  After giving effect to the issuance and cancellation, we have 40,000,000 shares of common stock outstanding.

26

No underwriters were used in the above stock transactions.  We relied upon the exemption from registration contained in Section 4(2) as to all of the transactions, as the investors were either deemed to be sophisticated with respect to the investment in the securities due to their financial condition and involvement in our business or were accredited investors.  Restrictive legends were placed on the certificates evidencing the securities issued in all of the above transactions.

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information regarding each person who beneficially owns 5% or more of our common stock and the beneficial ownership of our directors and officers as of October 14, 2008.
 
Name and Address of Beneficial Owners (1)
Amount and Nature of Beneficial Ownership
Percent of Class for Vote (2)
Jamie Lee and Jennifer Lynn Mancl
4400 Commerce Drive
Wisconsin Rapids, Wisconsin 54494
24,000,000 (3)
60%
Integritas, Inc.
1135 Terminal Way, Suite 209
Reno, Nevada 89502
4,500,000
11.3%
Samuel W. Fairchild
1,370,000 (4)
3.3%
Thomas J. Klismith
100,000 (5)
0.2%
Daniel P. Wergin
80,000 (6)
0.2%
Jeffrey S. Keuntjes
20,000 (7)
-
Kenneth A. Iwinski
-
-
Officers and directors as a group (7 persons)
24,450,000
63.7%
_______________
(1)  
Where persons listed on this table have the right to obtain additional shares of common stock through the exercise or conversion of other securities within 60 days from October 14, 2008, these additional shares are deemed to be outstanding for the purpose of computing the percentage of common stock owned by such persons, but are not deemed to be outstanding for the purpose of computing the percentage owned by any other person.  Percentages are based on 40,000,000 shares of common stock outstanding on October 14, 2008.
(2)  
To our knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the shares set forth opposite such person’s name.
(3)  
Jamie Lee Mancl and Jennifer Lynn Mancl are married and share the voting and investment power associated with the 24,000,000 shares of common stock they own.
 (4)   Includes 560,000 shares of common stock issuable upon conversion of Convertible Debentures and 560,000 shares of common stock issuable upon exercise of Warrants owned by ECC Investment Partners, LLC.  Mr. Fairchild is the Managing Partner of ECC Investment Partners, LLC and exercises investment power over that entity.  
(5)  
Includes 50,000 shares of common stock issuable upon conversion of Convertible Debentures and 50,000 shares of common stock issuable upon exercise of Warrants.
(6)  
Includes 40,000 shares of common stock issuable upon conversion of Convertible Debentures and 40,000 shares of common stock issuable upon exercise of Warrants.
(7)  
Includes 10,000 shares of common stock issuable upon conversion of Convertible Debentures and 10,000 shares of common stock issuable upon exercise of Warrants.

Changes in Control

The Share Exchange described above effected a change of control.  Our previous officers and directors resigned in connection with the Share Exchange and five new directors were appointed.

27

Item 2.03
Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The disclosure set forth in Item 2.01 of this report is incorporated herein by reference.

Item 3.02
Unregistered Sales of Equity Securities.

The disclosure set forth in Item 2.01 of this report is incorporated herein by reference.

Item 5.01
Changes in Control of Registrant.

The disclosure set forth in Item 2.01 of this report is incorporated herein by reference.

Item 5.02
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

The disclosure set forth in Item 2.01 of this report is incorporated herein by reference.
 
Item 5.03
Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

The disclosure set forth in Item 2.01 of this report is incorporated herein by reference.
 
Item 5.06
Change in Shell Company Status.

The disclosure set forth in Item 2.01 of this report is incorporated herein by reference.

Item 8.01
Other Items.

The disclosure set forth in Item 2.01 of this report is incorporated herein by reference.
 
Item 9.01
Financial Statements and Exhibits

Regulation
S-K Number
Document
2.1
Share Exchange Agreement dated June 26, 2008. (1)
2.2
First Amendment to Share Exchange Agreement dated August 8, 2008. (2)
3.1
Articles of Merger effective October 14, 2008
3.2
Amended and Restated Articles of Incorporation effective October 14, 2008
3.3
Amended and Restated Bylaws adopted October 14, 2008
10.1
2008 Stock Incentive Plan
10.2
Industrial Development Revenue Bonds, Bond Agreement dated February 28, 2007
10.3
Industrial Development Revenue Bonds, Promissory Note 2007A dated February 28, 2007
10.4
Industrial Development Revenue Bonds, Promissory Note 2007B dated February 28, 2007
10.5
Industrial Development Revenue Bonds, Promissory Note 2007C dated February 28, 2007
10.6
Industrial Development Revenue Bonds, Credit Agreement dated February 28, 2007
10.7
Industrial Development Revenue Bonds, Construction Mortgage, Assignment Of Leases And Rents and Fixture Filing dated February 28, 2007
10.8
Industrial Development Revenue Bonds, Security Agreement dated February 28, 2007
10.9
Option Agreement dated June 18, 2008
10.10
Purchase and Supply Agreement dated October 13, 2008
99.1
Unaudited financial statements as of June 30, 2008
99.2
Audited Financial Statements as of December 31, 2007
99.3
Pro forma combined Financial Statements as of June 30, 2008
__________________
(1)  
Filed as an exhibit to the Current Report on Form 8-K dated June 26, 2008, filed June 27, 2008.
(2)  
Filed as an exhibit to the Definitive Information Statement on Schedule 14C filed September 24, 2008.
 
28

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
ENERGY COMPOSITES CORPORATION
 
October 17, 2008
 
By:    /s/ Samuel W. Fairchild                                                                                            
 
Samuel W. Fairchild
 
Chief Executive Officer

 
 
29

 

Financial Statements and Exhibits

Regulation
S-K Number
Document
2.1
Share Exchange Agreement dated June 26, 2008. (1)
2.2
First Amendment to Share Exchange Agreement dated August 8, 2008. (2)
3.1
Articles of Merger effective October 14, 2008
3.2
Amended and Restated Articles of Incorporation effective October 14, 2008
3.3
Amended and Restated Bylaws adopted October 14, 2008
10.1
2008 Stock Incentive Plan
10.2
Industrial Development Revenue Bonds, Bond Agreement dated February 28, 2007
10.3
Industrial Development Revenue Bonds, Promissory Note 2007A dated February 28, 2007
10.4
Industrial Development Revenue Bonds, Promissory Note 2007B dated February 28, 2007
10.5
Industrial Development Revenue Bonds, Promissory Note 2007C dated February 28, 2007
10.6
Industrial Development Revenue Bonds, Credit Agreement dated February 28, 2007
10.7
Industrial Development Revenue Bonds, Construction Mortgage, Assignment Of Leases And Rents and Fixture Filing dated February 28, 2007
10.8
Industrial Development Revenue Bonds, Security Agreement dated February 28, 2007
10.9
Option Agreement dated June 18, 2008
10.10
Purchase and Supply Agreement dated October 13, 2008
99.1
Unaudited financial statements as of June 30, 2008
99.2
Audited Financial Statements as of December 31, 2007
99.3
Pro forma combined Financial Statements as of June 30, 2008
_______________
(1)  
Filed as an exhibit to the Current Report on Form 8-K dated June 26, 2008, filed June 27, 2008.
(2)  
Filed as an exhibit to the Definitive Information Statement on Schedule 14C filed September 24, 2008.

 
 
 
 
 
 
 
 
 
 
30
 

 


 
 


 
 
 
 
 
 
 
 
 
EXHIBIT 3.1
 
ARTICLES OF MERGER EFFECTIVE OCTOBER 14, 2008
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 


 
 


 
 
 
 
 
EXHIBIT 3.2
 
AMENDED AND RESTATED ARTICLES OF INCORPORATION
EFFECTIVE OCTOBER 14, 2008
 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 


 
 


 
 
 
 
 
 
 
 
 
 
EXHIBIT 3.3
 
AMENDED AND RESTATED BYLAWS
ADOPTED OCTOBER 14, 2008

 
 
 

 













AMENDED AND RESTATED BYLAWS


OF


ENERGY COMPOSITES CORPORATION
 
 
 
 
 
 
 

______________________________
As adopted October 14, 2008
 
 

 
 
 
 
ENERGY COMPOSITES CORPORATION
AMENDED AND RESTATED BYLAWS
 
TABLE OF CONTENTS

 
Section Page
   
ARTICLE I - Offices
 
     
1.1
Registered Office
1
1.2
Principal Office
1
     
ARTICLE II - Stockholders
 
     
2.1
Annual Meeting
1
2.2
Special Meetings
1
2.3
Place of Meeting
2
2.4
Notice of Meeting
2
2.5
Adjournment
2
2.6
Organization
2
2.7
Closing of Transfer Books or Fixing of Record Date
2
2.8
Quorum
3
2.9
Proxies
3
2.10
Voting of Shares
3
2.11
Action Taken Without a Meeting
4
2.12
Meetings by Telephone
4
2.13
Voting by Class or Series
4
2.14
Stockholder Proposals
4
2.15
Conduct of Meeting
5
     
ARTICLE III - Directors
 
     
3.1
Board of Directors; Number; Qualifications; Election
5
3.2
Powers of the Board of Directors: Generally
5
3.3
Resignation
6
3.4
Removal
6
3.5
Vacancies
6
3.6
Nominations of Directors
6
3.7
Regular Meetings
7
3.8
Special Meetings
7
3.9
Notice
7
3.10
Quorum
7
3.11
Manner of Acting
8
3.12
Compensation
8
 
ii
 
 

 
 
3.13
Action Taken Without a Meeting
8
3.14
Meetings by Telephone
8
3.15
Interested Directors
8
     
ARTICLE IV – Committees of the Board of Directors
 
     
4.1
Committees
9
4.2
Committee Chairman, Books and Records
9
4.3
Alternates
9
4.4
Quorum and Manner of Acting
9
     
ARTICLE V - Officers and Agents
 
     
5.1
Officers of the Corporation
9
5.2
Election and Term of Office
10
5.3
Removal
10
5.4
Vacancies
10
5.5
President
10
5.6
Vice Presidents
10
5.7
Secretary
10
5.8
Treasurer
11
5.9
Salaries
11
5.10
Bonds
11
     
ARTICLE VI - Stock
 
     
6.1
Stock Certificates and Transfers
12
6.2
Lost, Stolen or Destroyed Certificates
12
6.3
Transfer Agents, Registrars, and Paying Agents
12
     
ARTICLE VII - Indemnification of Officers and Directors
 
     
7.1
Indemnification; Advancement of Expenses.
13
7.2
Insurance and Other Financial Arrangements Against Liability of Directors, Officer, Employees, and Agents
13
     
     
ARTICLE VIII – Applicability of Certain Statutes
 
     
8.1
Acquisition of Controlling Interest
13
8.2
Combinations with Interested Stockholders
13
 
iii
 
 

 
 
     
ARTICLE IX - Execution of Instruments; Loans, Checks and Endorsements; Deposits; Proxies
 
     
9.1
Execution of Instruments
13
9.2
Loans
14
9.3
Checks and Endorsements
14
9.4
Deposits
14
9.5
Proxies
14
9.6
Contracts
14
     
ARTICLE X - Miscellaneous
 
     
10.1
Waivers of Notice
15
10.2
Corporate Seal
15
10.3
Fiscal Year
15
10.4
Amendment of Bylaws
15
10.5
Uniformity of Interpretation and Severability
15
10.6
Emergency Bylaws
15
     
Seretary's Certification 15 
 
 
 
 
 
 
 
iv
 
 

 
 
AMENDED AND RESTATED BYLAWS

OF
 
ENERGY COMPOSITES CORPORATION
 
 
ARTICLE I
Offices

1.1             Registered Office .  The registered office of the Corpora­tion required by the Chapter 78 of the Nevada Revised Statutes (“NRS”) to be maintained in Nevada may be, but need not be, identical with the principal office if in Nevada, and the address of the registered office may be changed from time to time by the Board of Directors.

1.2             Principal Office .  The Corporation may have such other office or offices either within or outside of the State of Nevada as the business of the Corporation may require from time to time if so designated by the Board of Directors.
 
ARTICLE II
Stockholders

2.1             Annual Meeting .  Unless otherwise designated by the Board of Directors, the annual meeting shall be held on the date and at the time and place fixed by the Board; provided, however, that the first annual meeting shall be held on a date that is within 18 months after the date on which the Corporation first has stockholders, and each successive annual meeting shall be held on a date that is within 18 months after the preceding annual meeting.  If the Corporation’s common stock is listed on a national stock exchange or Nasdaq and the Corporation is subject to the corporate governance requirements of such market, the Corporation shall hold its annual meeting on a date that is within one year after the end of the Corporation’s fiscal year.

2.2             Special Meetings .  Special meetings of stockholders of the Corporation, for any purpose, may be called by the Chairman of the Board, the President, or a majority of the Board of Directors.  Special meetings of the stockholders shall be called by the Secretary at the request of stockholders only on the written request of stockholders entitled to cast at least a majority of all the votes entitled to be cast at the meeting.  Such written request shall state the purpose or purposes of the meeting and the matters proposed to be acted upon at the meeting and shall be delivered to the principal office of the Corporation addressed to the Secretary.  The Secretary shall inform the stockholders who make the request of the reasonably estimated cost of preparing and mailing a notice of the meeting and, upon payment of these costs to the Corporation, notify each stockholder entitled to notice of the meeting.  At a special meeting no business shall be transacted and no corporate action shall be taken other than that stated in the notice of the meeting.

 
1

 
2.3             Place of Meeting .  The Board of Directors may designate any place, either within or outside the State of Nevada, as the place for any annual meeting or special meeting called by the Board of Directors.  If no designation is made, or if a meeting shall be called otherwise than by the Board, the place of meeting shall be the Company’s principal offices, whether within or outside the State of Nevada.

2.4             Notice of Meeting .  Written notice signed by an officer designated by the Board of Directors, stating the place, day, and hour of the meeting and the purpose for which the meeting is called, and the means of electronic communications, if any, by which stockholders and proxies shall be deemed to be present in person and vote, shall be delivered personally or mailed postage prepaid or delivered by any other means set forth in NRS (currently 78.370) to each stockholder of record entitled to vote at the meeting not less than 10 nor more than 60 days before the meeting.  If mailed, such notice shall be directed to the stockholder at his address as it appears upon the records of the Corporation, and notice shall be deemed to have been given upon the mailing of any such notice, and the time of the notice shall begin to run from the date upon which the notice is deposited in the mail for transmission to the stockholder.  Personal delivery of any such notice to any officer of a corporation or association, or to any member of a partnership, constitutes delivery of the notice to the corporation, association or partnership.  Any stockholder may waive notice of any meeting by a writing signed by him, or his duly authorized attorney, either before or after the meeting.

2.5             Adjournment .  When a meeting is for any reason adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken.  At the adjourned meeting, any business may be transacted which might have been transacted at the original meeting.  The Board of Directors must fix a new record date if the meeting is adjourned to a date more than 60 days later than the date set for the original meeting.  If a new record date is fixed for the adjourned meeting, notice of the adjourned meeting must be given to each stockholder of record as of the new record date.

2.6             Organization .  The Chairman of the Board or, if none, the President or any vice president shall call meetings of stockholders to order and act as chairman of such meetings.  In the absence of said officers, any stockholder entitled to vote at that meeting, or any proxy of any such stockholder, may call the meeting to order and a chairman shall be elected by a majority of the stockholders entitled to vote at that meeting.  In the absence of the Secretary or any assistant secretary of the Corporation, any person appointed by the chairman shall act as secretary of such meeting.  An appropriate number of inspectors for any meeting of stockholders may be appointed by the chairman of such meeting.  Inspectors so appointed will open and close the polls, will receive and take charge of proxies and ballots, and will decide all questions as to the qualifications of voters, validity of proxies and ballots, and the number of votes properly cast.

2.7             Closing of Transfer Books or Fixing of Record Date .  The Board of Directors may prescribe a period not exceeding 60 days before any meeting of the stockholders during which no transfer of stock on the books of the Corporation may be made, or may fix a day not more than 60 days before the holding of any such meeting as the day as of which stockholders entitled to notice of and to vote at such meetings must be determined.  Only stockholders of record on that day are entitled to notice or to vote at such meeting.  If a record date is not fixed, the record date is at the
 
 
 
2

 
 
close of business on the day before the day on which the first notice is given or, if notice is waived, at the close of business on the day before the meeting is held.  A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders applies to an adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting.

2.8             Quorum .  Unless otherwise provided by the Articles of Incorporation, a majority of the voting power that is present, in person or by proxy, regardless of whether the proxy has authority to vote on all matters, shall constitute a quorum at a meeting of stockholders.  If less than a quorum is represented at a meeting, a majority of the shares so represented may adjourn the meeting without further notice for a period not to exceed 60 days at any one adjournment.  At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified.  The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of stockholders so that less than a quorum remains.

Unless the NRS provides for different proportions, if a quorum is present, action by the stockholders on a matter other than the election of directors is approved if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the action.

2.9             Proxies .  At all meetings of stockholders, a stockholder may vote by proxy, as prescribed by law.  Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting.  No proxy shall be valid after 6 months from the date of its creation, unless it is coupled with an interest, or unless the stockholder specifies in it the length of time for which it is to continue in force, which may not exceed 7 years from the date of its creation.  If the Corporation’s common stock is listed on a national stock exchange or Nasdaq and the Corporation is subject to the corporate governance requirements of such market, the Corporation shall solicit proxies and provide proxy statements for all meetings of stockholders.

2.10                        Voting of Shares .  Each outstanding share, regardless of class, shall be entitled to one vote, and each fractional share shall be entitled to a corresponding fractional vote on each matter submitted to a vote at a meeting of stockholders, except as may be otherwise provided in the Articles of Incorporation or in the resolution providing for the issuance of the stock adopted by the Board of Directors pursuant to authority expressly vested in it by the provisions of the Articles of Incorporation.  If the Articles of Incorporation or any such resolution provide for more or less than one vote per share for any class or series of shares on any matter, every reference in the Articles of Incorporation, these Bylaws and the NRS to a majority or other proportion or number of shares shall be deemed to refer to a majority or other proportion of the voting power of all of the shares or those classes or series of shares, as may be required by the Articles of Incorporation, or in the resolution providing for the issuance of the stock adopted by the Board of Directors pursuant to authority expressly vested in it by the Articles of Incorporation, or the NRS.  Cumulative voting shall not be allowed.

Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.  In determining the number of votes cast for or against a proposal, shares abstaining from voting on a matter
 
 
 
3

 
(including elections) will not be treated as a vote for or against the proposal.  A non-vote by a broker will be treated as if the broker never voted, but a non-vote by a stockholder will be counted as a vote “for” the management’s position.

2.11                        Action Taken Without a Meeting .  Unless otherwise provided in the Articles of Incorporation or these Bylaws, any action required or permitted to be taken at a meeting of the stockholders may be taken without a meeting if a written consent thereto is signed by stockholders holding at least a majority of the voting power, except that if a different proportion of voting power is required for such an action at a meeting, then that proportion of written consents is required.  In no instance where action is authorized by written consent need a meeting of stock­holders be called or notice given.  The written consent must be filed with the minutes of the proceedings of the stockholders.

2.12                        Meetings by Telephone .  Unless otherwise restricted by the Articles of Incorpora­tion or these Bylaws, stockholders may participate in a meeting of stockholders by means of a telephone conference or similar method of communication by which all persons participating in the meeting can hear each other.  Participation in a meeting pursuant to this Section constitutes presence in person at the meeting.

2.13                        Voting by Class or Series .  Unless otherwise provided in the NRS, the Articles of Incorporation or these Bylaws, if voting by a class or series of stockholders is permitted or required, a majority of the voting power of the class or series that is present in person or by proxy, regardless of whether the proxy has authority to vote on all matters, constitutes a quorum for the transaction of business.  Action by the stockholders of each class or series is approved if a majority of the voting power of a quorum of the class or series votes for the action.

2.14                        Stockholder Proposals .  At an annual meeting of stockholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before the annual meeting of stockholders (a) by, or at the direction of, the Board of Directors or (b) by a stockholder of the Corporation who complies with the procedures set forth in this Section 2.14.  For business or a proposal to be properly brought before an annual meeting of stockholders by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation.  To be timely, a stockholder’s notice must be received by the Secretary at the principal executive offices of the Corporation not earlier than 120 days nor later than 90 days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be received by the Secretary not earlier than the 120th day prior to such annual meeting and not later than the 90th day prior to such annual meeting, or if later, the 10th day following the day on which public announcement of the date of such meeting is first made.  In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder’s notice as described above.

A stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before an annual meeting of stockholders (i) a description, in 500 words or less, of the business desired to be brought before the annual meeting and the reasons for conducting such
 
 
 
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business at the annual meeting, (ii) the name and address, as they appear on the Corporation’s books, of the stockholders known by such stockholder to be supporting such proposal, (iii) the class and number of shares of the Corporation which are beneficially owned by such stockholder on the date of such stockholder’s notice and by any other stockholders known by such stockholder to be supporting such proposal on the date of such stockholder’s notice, (iv) a description, in 500 words or less, of any interest of the stockholder in such proposal, and (v) a representation that the stockholder is a holder of record of stock of the Corporation and intends to appear in person or by proxy at the meeting to present the proposal specified in the notice.  Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at a meeting of stockholders except in accordance with the procedures set forth in this Section 2.14.

2.15                        Conduct of Meeting.   The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate.  Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting.  Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following:  (a) the establishment of an agenda or order of business for the meeting; (b) rules and procedures for maintaining order at the meeting and the safety of those present; (c) limitations on attendance at or participation in the meeting to only stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (d) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (e) limitations on the time allotted to questions or comments by participants.  Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
 
ARTICLE III
Directors

3.1             Board of Directors; Number; Qualifications; Election .   The Corporation shall be managed by a Board of Directors, all of whom must be natural persons at least 18 years of age.  Directors need not be residents of the State of Nevada or stockholders of the Corporation.  The number of directors of the Corporation shall be not less than one nor more than twelve.  Subject to such limita­tions, the number of directors may be increased or decreased by resolution of the Board of Directors, but no decrease shall have the effect of shortening the term of any incumbent director.  Each director shall hold office until the next annual meeting of stockholders or until his successor has been elected and quali­fied.

3.2             Powers of the Board of Directors: Generally .  Subject only to such limitations as may be provided by the NRS or the Articles of Incorporation, the Board of Directors shall have full control over the affairs of the Corporation.

 
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3.3             Resignation .  Any director of the Corporation may resign at any time by giving written notice of his resignation to the Board of Directors, the President, any vice president, or the Secretary of the Corporation.  Such resignation shall take effect at the date of receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.  When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective.

3.4             Removal .  Except as otherwise provided in the Articles of Incorporation, any director may be removed, either with or without cause, at any time by the vote of the stockholders representing not less than two-thirds of the voting power of the issued and outstanding stock entitled to voting power.

3.5             Vacancies .  All vacancies, including those caused by an increase in the number of directors, may be filled by a majority of the remaining directors, though less than a quorum, unless it is otherwise provided in the Articles of Incorporation.  A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office.  A director elected to fill a vacancy caused by an increase in the number of directors shall hold office until the next annual meeting of stockholders and until his successor has been elected and has qualified.
 
3.6             Nominations of Directors .  Subject to the rights, if any, of the holders of any series of preferred stock then outstanding, only persons nominated in accordance with the procedures set forth in this Section 3.6 shall be eligible for election as directors.  Nominations of persons for election to the Board of Directors may be made at an annual meeting of stockholders or special meeting of stockholders called by the Board of Directors for the purpose of electing directors (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation entitled to vote for the election of directors at such meeting who complies with the notice procedure set forth in this Section 3.6.  Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation.  To be timely, a stockholder’s notice must be received by the Secretary at the principal executive offices of the Corporation not earlier than 120 days nor later than 90 days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be received by the Secretary not earlier than the 120th day prior to such annual meeting and not later than the 90th day prior to such annual meeting, or if later, the 10th day following the day on which public announcement of the date of such meeting is first made.  In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder’s notice as described above.
 
A stockholder’s notice to the Secretary shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the Corporation which are beneficially owned by such person on the date of such stockholder’s notice and (D) any other information relating to such person
 
 
 
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that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, or any successor statute thereto (the “Exchange Act”) (including without limitation such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to the stockholder giving the notice (A) the name and address, as they appear on the Corporation’s (or its agent’s) books, of such stockholder and any other stockholders known by such stockholder to be supporting such nominee(s), (B) the class and number of shares of the Corporation which are beneficially owned by such stockholder on the date of such stockholder’s notice, and (C) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; and (iii) a description of all arrangements or understandings between the stockholder and each nominee and other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder.  No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 3.6.  The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by this Section and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.

3.7             Regular Meetings .  A regular meeting of the Board of Directors shall be held without other notice than this Bylaw immediately after and at the same place as the annual meeting of stockholders.  The Board of Directors may provide by resolution the time and place, either within or outside the State of Nevada, for the holding of additional regular meetings without other notice than such resolution.

3.8             Special Meetings.   Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board or President and shall be called by the Secretary on the written request of three directors.  The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or outside Nevada, as the place for holding any special meeting of the Board of Directors called by them.

3.9             Notice .  Notice of any special meeting shall be given at least two days previously thereto by written notice delivered personally or mailed to each director at his business address.  Notice may also be given by facsimile machine when directed to a number at which the director has consent to receive notice, or by electronic mail, when directed to an electronic mail address at which the director has consent to receive notice.  Any director may waive notice of any meeting.  A director’s presence at a meeting shall constitute a waiver of notice of such meeting if the director’s oral consent is entered on the minutes or by taking part in the deliberations at such meeting without objecting.  Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

3.10                        Quorum .  A majority of the number of directors elected and qualified at the time of the meeting shall constitute a quorum for the transaction of business at any such meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice.

 
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3.11                        Manner of Acting .  If a quorum is present, the affirma­tive vote of a majority of the directors present at the meeting and entitled to vote on that particular matter shall be the act of the Board of Directors, unless the vote of a greater number is required by law or the Articles of Incorporation.

3.12                        Compensation .  By resolution of the Board of Directors, any director may be paid any one or more of the following:  his expenses, if any, of attendance at meetings; a fixed sum for attendance at such meeting; or a stated salary as director.  No such payment shall preclude any director from serving the Corpora­tion in any other capacity and receiving compensation therefor.

3.13                        Action Taken Without a Meeting.   Unless otherwise provided in the Articles of Incorpora­tion or these Bylaws, any action required or permitted to be taken at a meeting of the Board of Directors or a committee thereof may be taken without a meeting if, before or after the action, a written consent thereto is signed by all the members of the Board or of the committee.  The written consent must be filed with the minutes of the proceedings of the Board or committee.

3.14                        Meetings by Telephone .  Unless otherwise restricted by the Articles of Incorpora­tion or these Bylaws, members of the Board of Directors or of any committee designated by the Board, may participate in a meeting of the Board or committee by means of a telephone conference or similar method of communication by which all persons participating in the meeting can hear each other.  Participation in a meeting pursuant to this Section constitutes presence in person at the meeting.

3.15                        Interested Directors .  No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers is a director or officer of this Corporation, on in which one of the directors or officers of this Corporation has a financial interest in such contract or transaction, shall be void or voidable solely for this reason, or solely because (a) the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, (b) his or their votes are counted for such purpose, or (c) the director or officer joins in the signing of a written consent which authorizes or approves the contract or transaction, if (i) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (ii) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; (iii) the fact of the common directorship, office or financial interest is not known to the director or officer at the time the transaction is brought before the Board or committee for action; or (iv) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board, a committee thereof or the stockholders.  Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board or a committee which authorizes the contract or transaction.

 
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ARTICLE IV
Committees of the Board Of Directors

4.1             Committees .  The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board, designate one or more commit­tees, each committee to consist of at least one direc­tor, which, to the extent provided in the resolution or resolu­tions or in these Bylaws, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation.  Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors.  Unless the Articles of Incorporation or these Bylaws provide otherwise, the Board of Directors may appoint natural persons who are not directors to serve on committees.

4.2             Committee Chairman, Books and Records .  As determined or delegated by the Board of Directors, each committee shall elect a chairman to serve for such term as it may determine, shall fix its own rules of procedure and shall meet at such times and places and upon such call or notice as shall be provided by such rules.  It shall keep a record of its acts and proceedings, and all actions of the committee shall be reported to the Board of Directors at the next meeting of the Board.

4.3             Alternates .  The Board of Directors may designate one or more directors as alternate members of a committee to replace any member who is disqualified or absent from a meeting of the committee.  Unless the Board of Directors appoints alternate members pursuant to this Section 4.3, the member or members of a committee present at a meeting and not disqualified from voting, whether or not the member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of an absent or disqualified member of the committee.

4.4             Quorum and Manner of Acting .  At each meeting of any committee, the presence of a majority of the members of such committee, whether regular or alternate, shall be necessary to constitute a quorum for the transaction of business, and if a quorum is present the concurrence of a majority of those present shall be necessary for the taking of any action.
 
ARTICLE V
Officers and Agents

5.1             Officers of the Corporation.   The Corporation shall have a president, a secretary, and a treasurer, each of whom shall be elected by the Board of Directors.  The Board of Directors may appoint one or more vice presi­dents and such other officers, assistant officers, committees, and agents, including a chairman of the board, assistant secretaries, and assistant treasurers, as they may consider necessary, who shall be chosen in such manner and hold their offices for such terms and have such authority and duties as from time to time may be determined by the Board of Directors.  One person may hold any two or more offices.  The officers of the Corporation shall be natural persons 18 years of age or older.  In all cases where the duties of any officer, agent, or employee are not prescribed by the Bylaws or by the Board of Directors, such officer, agent, or employee shall
 
 
 
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follow the orders and instructions of (a) the President, and if a chairman of the board has been elected, then (b) the Chairman of the Board.

5.2             Election and Term of Office .  The officers of the Corporation shall be elected by the Board of Directors annually at the first meeting of the Board held after each annual meeting of the stockholders.  If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as may be convenient.  Each officer shall hold office until the first of the following occurs:  until his successor shall have been duly elected and shall have qualified; or until his death; or until he shall resign; or until he shall have been removed in the manner hereinafter provided.

5.3             Removal .  Any officer or agent may be removed by the Board of Directors or by the executive committee, if any, whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed.  Election or appointment of an officer or agent shall not of itself create contract rights.

5.4             Vacancies .  A vacancy in any office, however occurring, may be filled by the Board of Directors for the unexpired portion of the term.

5.5             President .  The President shall, subject to the direction and supervision of the Board of Directors, be the chief executive officer of the Corporation and shall have general and active control of its affairs and business and general supervision of its officers, agents, and employees.  The President shall, unless otherwise directed by the Board of Directors, attend in person or by substitute appointed by him, or shall execute, on behalf of the Corpora­tion, written instruments appointing a proxy or proxies to represent the Corporation, at all meetings of the stockholders of any other corporation in which the Corporation shall hold any stock.  The President may, on behalf of the Corporation, in person or by substitute or by proxy, execute written waivers of notice and consents with respect to any such meetings.  At all such meetings and otherwise, the President, in person or by substitute or proxy as aforesaid, may vote the stock so held by the Corporation and may execute written consents and other instruments with respect to such stock and may exercise any and all rights and powers incident to the ownership of said stock, subject however to the instruc­tions, if any, of the Board of Directors.  The President shall have custody of the Treasurer’s bond, if any.  If a chairman of the board has been elected, the Chairman of the Board shall have, subject to the direction and modification of the Board of Direc­tors, all the same responsibilities, rights, and obligations as described in these Bylaws for the President.

5.6             Vice Presidents .  The Vice Presidents, if any, shall assist the President and shall perform such duties as may be assigned to them by the President or by the Board of Directors.  In the absence of the President, the Vice President designated by the Board of Directors or (if there be no such designation) the Vice President designated in writing by the President shall have the powers and perform the duties of the President.  If no such designation shall be made, all vice presidents may exercise such powers and perform such duties.

5.7             Secretary .  The Secretary shall perform the following:  (a) keep the minutes of the proceedings of the stockholders, executive committee, and the Board of Directors; (b) see that all
 
 
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notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation and affix the seal to all documents when authorized by the Board of Directors; (d) keep, at the Corporation’s registered office or principal place of business within or outside Nevada, a record containing the names and addresses of all stockholders and the number and class of shares held by each, unless such a record shall be kept at the office of the Corporation’s transfer agent or registrar; (e) sign with the President or a vice president, certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the Corporation, unless the Corporation has a transfer agent; and (g) in general, perform all duties incident to the office of secretary and such other duties as from time to time may be assigned by the President or by the Board of Directors.  Assistant secretaries, if any, shall have the same duties and powers, subject to supervision by the Secre­tary.

5.8             Treasurer .  The Treasurer shall be the chief financial officer of the Corporation and shall have the care and custody of all funds, securities, evidences of indebtedness, and other personal property of the Corporation, and shall deposit the same in accordance with the instructions of the Board of Directors.  The Treasurer shall receive and give receipts and acquittances for monies paid in or on account of the Corporation, and shall pay out of the funds on hand all bills, payrolls, and other just debts of the Corporation of whatever nature upon maturity.  The Treasurer shall perform all other duties incident to the office of the treasurer and, upon request of the Board, shall make such reports to it as may be required at any time.  The Treasurer shall, if required by the Board, give the Corporation a bond in such sums and with such sureties as shall be satisfactory to the Board, conditioned upon the faithful perfor­mance of his duties and for the restoration to the Corporation of all books, papers, vouchers, money, and other property of whatever kind in his possession or under his control belonging to the Corporation.  The Treasurer shall have such other powers and perform such other duties as may be from time to time prescribed by the Board of Directors or the President.  The assistant treasurers, if any, shall have the same powers and duties, subject to the supervision of the Treasurer.

The Treasurer shall also be the principal accounting officer of the Corporation.  The Treasurer shall prescribe and maintain the methods and systems of accounting to be followed, keep complete books and records of account, prepare and file all local, state, and federal tax returns, prescribe and maintain an adequate system of internal audit, and prepare and furnish to the President and the Board of Directors statements of account showing the financial position of the Corporation and the results of its operations.

5.9             Salaries .  Officers of the Corporation shall be entitled to such salaries, emoluments, compensation, or reimbursement as shall be fixed or allowed from time to time by the Board of Directors.

5.10                        Bonds .  If the Board of Directors by resolution shall so require, any officer or agent of the Corporation shall give bond to the Corporation in such amount and with such surety as the Board of Directors may deem sufficient, conditioned upon the faithful performance of that officer’s or agent’s duties and offices.
 
 
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ARTICLE VI
Stock

6.1             Stock Certificates and Transfers .  (a)  The interest of each stockholder of the Corporation shall be evidenced by certificates representing shares of stock in such form as the appropriate officers of the Corporation may from time to time prescribe; provided that the Board of Directors may provide by resolution or resolutions that all or some of all classes or series of the stock of the Corporation shall be represented by uncertificated shares.  Every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in the name of the Corporation by the Chairman of the Board and Chief Executive Officer, or the President or any other authorized officer and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation representing the number of shares registered in certificate form.

(b)  The shares of the stock of the Corporation represented by certificates shall be transferred on the books of the Corporation by the holder thereof in person or by his attorney, upon surrender for cancellation of certificates representing the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require.  Upon receipt of proper transfer instructions from the registered owner of uncertificated shares such uncertificated shares shall be canceled and issuance of new equivalent uncertificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the Corporation.  Within a reasonable time after the issuance or transfer of uncertificated stock, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Chapter 78 of the NRS or, unless otherwise provided by Chapter 78 of the NRS, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

6.2             Lost, Stolen or Destroyed Certificates .  No certificate for shares or uncertificated shares of stock in the Corporation shall be issued in place of any certificate alleged to have been lost, destroyed or stolen, except on production of such evidence of such loss, destruction or theft and on delivery to the Corporation of a bond of indemnity in such amount, upon such terms and secured by such surety, as the Board of Directors or its designee may in its or his discretion require.

6.3             Transfer Agents, Registrars, and Paying Agents .  The Board of Directors may at its discretion appoint one or more transfer agents, registrars, and agents for making payment upon any class of stock, bond, debenture, or other security of the Corporation.  Such agents and registrars may be located either within or outside Nevada.  They shall have such rights and duties and shall be entitled to such compensation as may be agreed.

 
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ARTICLE VII
Indemnification of Officers and Directors

7.1             Indemnification; Advancement of Expenses.   To the fullest extent permitted by the laws of the State of Nevada (currently set forth in NRS 78.7502), as the same now exists or may hereafter be amended or supplemented, the Corporation shall indemnify its directors and officers, including payment of expenses as they are incurred and in advance of the final disposition of any action, suit, or proceeding.  Employees, agents, and other persons may be similarly indemnified by the Corporation, including advancement of expenses, in such case or cases and to the extent set forth in a resolution or resolutions adopted by the Board of Directors.  No amendment of this Section shall have any effect on indemnifi­ca­tion or advance­ment of expenses relating to any event arising prior to the date of such amendment.

7.2             Insurance and Other Financial Arrangements Against Liability of Directors, Officers, Employees, and Agents.   To the fullest extent permitted by the laws of the State of Nevada (currently set forth in NRS 78.752), as the same now exists or may hereafter be amended or supplemented, the Corporation may purchase and maintain insurance and make other financial arrangements on behalf of any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, for any liability asserted against such person and liability and expense incurred by such person in its capacity as a director, officer, employee, or agent, or arising out of such person’s status as such, whether or not the Corporation has the authority to indemnify such person against such liability and expenses.
 
ARTICLE VIII
Applicability of Certain Statutes

8.1             Acquisition of Controlling Interest.   The provisions of the NRS pertaining to the acquisition of a controlling interest (currently set forth in NRS 78.378 to 78.3793, inclusive), as the same now exists or may hereafter be amended or supplemented, shall not apply to the Corporation.

8.2             Combinations with Interested Stockholders .  The provisions of the NRS pertaining to combinations with interested stockholders (currently set forth in NRS 78.411 to 78.444, inclusive), as the same now exists or may hereafter be amended or supplemented, shall not apply to the Corporation.
 
ARTICLE IX
Execution of Instruments; Loans, Checks and Endorsements;
Deposits; Proxies

9.1             Execution of Instruments .  The President or any vice president shall have the power to execute and deliver on behalf of and in the name of the Corporation any instrument requiring the signature of an officer of the Corporation, except as otherwise provided in these Bylaws or where the execution and delivery thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation.  Unless authorized to do so by these Bylaws or by the Board of
 
 
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Directors, no officer, agent, or employee shall have any power or authority to bind the Corporation in any way, to pledge its credit, or to render it liable pecuniarily for any purpose or in any amount.

9.2             Loans .  The Corporation may lend money to, guarantee the obligations of, and otherwise assist directors, officers, and employees of the Corporation, or directors of another corporation of which the Corporation owns a majority of the voting stock, only upon compliance with the requirements of the NRS.

No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors.  Such authority may be general or confined to specific instances.

9.3             Checks and Endorsements .  All checks, drafts, or other orders for the payment of money, obligations, notes, or other evidences of indebtedness, bills of lading, warehouse receipts, trade acceptances, and other such instruments shall be signed or endorsed by such officers or agents of the Corporation as shall from time to time be determined by resolution of the Board of Directors, which resolution may provide for the use of facsimile signatures.

9.4             Deposits .  All funds of the Corporation not otherwise employed shall be deposited from time to time to the Corporation’s credit in such banks or other depositories as shall from time to time be determined by resolution of the Board of Directors, which resolution may specify the officers or agents of the Corporation who shall have the power, and the manner in which such power shall be exercised, to make such deposits and to endorse, assign, and deliver for collection and deposit checks, drafts, and other orders for the payment of money payable to the Corporation or its order.

9.5             Proxies .  Unless otherwise provided by resolution adopted by the Board of Directors, the President or any vice president may from time to time appoint one or more agents or attorneys-in-fact of the Corporation, in the name and on behalf of the Corpora­tion, to cast the votes which the Corporation may be entitled to cast as the holder of stock or other securities in any other corporation, association, or other entity any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation, association, or other entity or to consent in writing, in the name of the Corporation as such holder, to any action by such other corpora­tion, association, or other entity, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal, or otherwise, all such written proxies or other instruments as he may deem necessary or proper in the premises.

9.6             Contracts .  The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances.

 
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ARTICLE X
Miscellaneous

10.1                        Waivers of Notice .  Whenever notice is required by the NRS, by the Articles of Incorpora­tion, or by these Bylaws, a waiver thereof in writing signed by the director, stockholder, or other person entitled to said notice, whether before, at, or after the time stated therein, or his appearance at such meeting in person or (in the case of a stock­holders’ meeting) by proxy, shall be equivalent to such notice.

10.2                        Corporate Seal .  The Board of Directors may adopt a seal circular in form and bearing the name of the Corporation, the state of its incorporation, and the word “Seal” which, when adopted, shall constitute the seal of the Corporation.  The seal may be used by causing it or a facsimile of it to be impressed, affixed, manually reproduced, or rubber-stamped with indelible ink.

10.3                        Fiscal Year .  The Board of Directors may, by resolution, adopt a fiscal year for the Corporation.

10.4                        Amendment of Bylaws .  The provisions of these Bylaws may at any time, and from time to time, be amended, supplemented or repealed by the Board of Directors.

10.5                        Uniformity of Interpretation and Severability .  These Bylaws shall be so interpreted and construed as to conform to the Articles of Incorporation and the laws of the State of Nevada or of any other state in which conformity may become necessary by reason of the qualification of the Corporation to do business in such state, and where conflict between these Bylaws, the Articles of Incorpora­tion or the laws of such a state has arisen or shall arise, these Bylaws shall be considered to be modified to the extent, but only to the extent, conformity shall require.  If any provision hereof or the application thereof shall be deemed to be invalid by reason of the foregoing sentence, such invalidity shall not affect the validity of the remainder of these Bylaws without the invalid provision or the application thereof, and the provi­sions of these Bylaws are declared to be severable.

10.6                        Emergency Bylaws .  Subject to repeal or change by action of the stockholders, the Board of Directors may adopt emergency bylaws in accordance with and pursuant to the provisions of the laws of the State of Nevada.

SECRETARY’S CERTIFICATION

The undersigned Secretary of Energy Composites Corporation (the “Corporation”) hereby certifies that the foregoing Amended and Restated Bylaws are the Bylaws of the Corporation adopted by the Board of Directors as of the 14th day of October, 2008.


By     /s/ Kenneth Iwinski                                                          
Kenneth Iwinski, Corporate Secretary
 
 
 
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EXHIBIT 10.1
 
2008 STOCK INCENTIVE PLAN
 
 
 
 
 
 
 

 
 
2008 Stock Incentive Plan

1.           Establishment, Purpose, and Types of Awards
 
Energy Composites Corporation (the “Company”) hereby establishes this equity-based incentive compensation plan to be known as the “2008 Stock Incentive Plan” (hereinafter referred to as the “Plan”), in order to provide incentives and awards to select employees, directors, consultants, and advisors of the Company and its Affiliates.

The Plan permits the granting of the following types of awards (“Awards”), according to the Sections of the Plan listed here:
Section 6
Options
Section 7
Share Appreciation Rights
Section 8
Restricted Shares, Restricted Share Units, and Unrestricted Shares
Section 9
Deferred Share Units
Section 10
Performance Awards
 
The Plan is not intended to affect and shall not affect any stock options, equity-based compensation, or other benefits that the Company or its Affiliates may have provided, or may separately provide in the future pursuant to any agreement, plan, or program, that is independent of this Plan.

2.           Defined Terms
 
Terms in the Plan that begin with an initial capital letter have the defined meaning set forth herein unless defined elsewhere in this Plan or the context of their use clearly indicates a different meaning.
 
“Affiliate” means, with respect to any Person (as defined below), any other Person that directly or indirectly controls or is controlled by or under common control with such Person.  For the purposes of this definition, “control,” when used with respect to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person or the power to elect directors, whether through the ownership of voting securities, by contract or otherwise; and the terms “affiliated,” “controlling” and “controlled” have meanings correlative to the foregoing.
 
“Applicable Law” means the legal requirements relating to the administration of options and share-based plans under applicable U.S. federal and state laws, the Code, any applicable stock exchange or automated quotation system rules or regulations, and the applicable laws of any other country or jurisdiction where Awards are granted, as such laws, rules, regulations and requirements shall be in place from time to time.
 
“Award” means any award made pursuant to the Plan, including awards made in the form of an Option, an SAR, a Restricted Share, a Restricted Share Unit, an Unrestricted Share, a Deferred Share Unit, and a Performance Award, or any combination thereof, whether alternative or cumulative, authorized by and granted under this Plan.

“Award Agreement” means any written document setting forth the terms of an Award that has been authorized by the Committee.  The Committee shall determine the form or forms of documents to be used, and may change them from time to time for any reason.
 
“Board” means the Board of Directors of the Company.
 
“Cause” for termination of a Participant’s Continuous Service will exist if the Participant is terminated from employment or other service with the Company or an Affiliate for any of the following reasons: (i) the Participant’s willful failure to substantially perform his or her duties and responsibilities to the Company or deliberate violation of a material Company policy; (ii) the Participant’s commission of any material act or acts of fraud, embezzlement, dishonesty, or other willful misconduct; (iii) the Participant’s material unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party to whom the Participant owes an obligation of nondisclosure as a result of his or her relationship with the Company; or (iv) Participant’s

 

 

willful and material breach of any of his or her obligations under any written agreement or covenant with the Company.
 
The Committee shall in its discretion determine whether or not a Participant is being terminated for Cause.  The Committee’s determination shall, unless arbitrary and capricious, be final and binding on the Participant, the Company, and all other affected persons.  The foregoing definition does not in any way limit the Company’s ability to terminate a Participant’s employment or consulting relationship at any time, and the term “Company” will be interpreted herein to include any Affiliate or successor thereto, if appropriate.

“Change in Control” means any of the following:
 
(i)            Acquisition of Controlling Interest.   Any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities.  In applying the preceding sentence, (i) securities acquired directly from the Company or its Affiliates by or for the Person shall not be taken into account, and (ii) an agreement to vote securities shall be disregarded unless its ultimate purpose is to cause what would otherwise be a Change in Control, as reasonably determined by the Board.
 
(ii)            Change in Board Control.   During a consecutive 2-year period commencing after the date of adoption of this Plan, individuals who constituted the Board at the beginning of the period (or their approved replacements, as defined in the next sentence) cease for any reason to constitute a majority of the Board.  A new Director shall be considered an “approved replacement” Director if his or her election (or nomination for election) was approved by a vote of at least a majority of the Directors then still in office who either were Directors at the beginning of the period or were themselves approved replacement Directors, but in either case excluding any Director whose initial assumption of office occurred as a result of an actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board.
 
(iii)            Merger.   The Company consummates a merger, or consolidation of the Company with any other corporation unless: (a) the voting securities of the Company outstanding immediately before the merger or consolidation would continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; and (b) no Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities.
 
(iv)            Sale of Assets.   The stockholders of the Company approve an agreement for the sale or disposition by the Company of all, or substantially all, of the Company’s assets.
 
(v)            Liquidation or Dissolution.   The stockholders of the Company approve a plan or proposal for liquidation or dissolution of the Company.
 
Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions.
 
“Code” means the U.S. Internal Revenue Code of 1986, as amended.
 
“Committee” means one or more committees or subcommittees of the Board appointed by the Board to administer the Plan in accordance with Section 4 above.  With respect to any decision involving an Award intended to satisfy the requirements of Section 162(m) of the Code, the Committee shall consist of two or more Directors of the Company who are “outside directors” within the meaning of Section 162(m) of the Code.  With respect to any decision relating to a Reporting Person, the Committee shall consist of two or more Directors who are disinterested within the meaning of Rule 16b-3.


 
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“Company” means Energy Composites Corp., a Nevada corporation; provided, however, that in the event the Company reincorporates to another jurisdiction, all references to the term “Company” shall refer to the Company in such new jurisdiction.
 
“Consultant” means any person, including an advisor, who is engaged by the Company or any Affiliate to render services and is compensated for such services.
 
“Continuous Service” means the absence of any interruption or termination of service as an Employee, Director, or Consultant.  Continuous Service shall not be considered interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Committee, provided that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; (iv) changes in status from Director to advisory director or emeritus status; or (v) in the case of transfers between locations of the Company or between the Company, its Affiliates or their respective successors.  Changes in status between service as an Employee, Director, and a Consultant will not constitute an interruption of Continuous Service.

“Deferred Share Units” mean Awards pursuant to Section 9 of the Plan.

“Director” means a member of the Board, or a member of the board of directors of an Affiliate.

“Disabled” means a condition under which a Participant is —
 
(i)  unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or
 
(ii)  by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, received income replacement benefits for a period of not less than 3 months under an accident or health plan covering employees of the Company.
 
“Eligible Person” means any Consultant, Director or Employee and includes non-Employees to whom an offer of employment has been extended.
 
“Employee” means any person whom the Company or any Affiliate classifies as an employee (including an officer) for employment tax purposes, whether or not that classification is correct.  The payment by the Company of a director’s fee to a Director shall not be sufficient to constitute “employment” of such Director by the Company.
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
 
“Fair Market Value” means, as of any date (the “Determination Date”) means: (i) the closing price of a Share on the New York Stock Exchange or the American Stock Exchange (collectively, the “Exchange”), on the Determination Date, or, if shares were not traded on the Determination Date, then on the nearest preceding trading day during which a sale occurred; or (ii) if such stock is not traded on the Exchange but is quoted on NASDAQ or a successor quotation system, (A) the last sales price (if the stock is then listed as a National Market Issue under The Nasdaq National Market System) or (B) the mean between the closing representative bid and asked prices (in all other cases) for the stock on the Determination Date as reported by NASDAQ or such successor quotation system; or (iii) if such stock is not traded on the Exchange or quoted on NASDAQ but is otherwise traded in the over-the-counter, the mean between the representative bid and asked prices on the Determination Date; or (iv) if subsections (i)-(iii) do not apply, the fair market value established in good faith by the Board.
 
“Grant Date” has the meaning set forth in Section 14 of the Plan.
 
“Incentive Share Option or ISO” hereinafter means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code, as designated in the applicable Award Agreement.


 
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“Involuntary Termination” means termination of a Participant’s Continuous Service under the following circumstances occurring on or after a Change in Control: (i) termination without Cause by the Company or an Affiliate or successor thereto, as appropriate; or (ii) voluntary termination by the Participant within 60 days following (A) a material reduction in the Participant’s job responsibilities, provided that neither a mere change in title alone nor reassignment to a substantially similar position shall constitute a material reduction in job responsibilities; (B) an involuntary relocation of the Participant’s work site to a facility or location more than 50 miles from the Participant’s principal work site at the time of the Change in Control; or (C) a material reduction in Participant’s total compensation other than as part of an reduction by the same percentage amount in the compensation of all other similarly-situated Employees, Directors or Consultants.
 
“Non-ISO” means an Option not intended to qualify as an ISO, as designated in the applicable Award Agreement.
 
“Option” means any stock option granted pursuant to Section 6 of the Plan.
 
“Participant” means any holder of one or more Awards, or the Shares issuable or issued upon exercise of such Awards, under the Plan.
 
“Performance Awards” mean Performance Units and Performance Compensation Awards granted pursuant to Section 10.
 
“Performance Compensation Awards” mean Awards granted pursuant to Section 10(b) of the Plan.
 
“Performance Unit” means Awards granted pursuant to Section 10(a) of the Plan which may be paid in cash, in Shares, or such combination of cash and Shares as the Committee in its sole discretion shall determine.
 
“Person” means any natural person, association, trust, business trust, cooperative, corporation, general partnership, joint venture, joint-stock company, limited partnership, limited liability company, real estate investment trust, regulatory body, governmental agency or instrumentality, unincorporated organization or organizational entity.
 
“Plan” means this Energy Composites Corp. 2008 Stock Incentive Plan.
 
“Reporting Person” means an officer, Director, or greater than ten percent shareholder of the Company within the meaning of Rule 16a-2 under the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange Act.
 
“Restricted Shares” mean Shares subject to restrictions imposed pursuant to Section 8 of the Plan.
 
“Restricted Share Units” mean Awards pursuant to Section 8 of the Plan.
 
“Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act, as amended from time to time, or any successor provision.
 
“SAR” or “Share Appreciation Right” means Awards granted pursuant to Section 7 of the Plan.
 
“Share” means a share of common stock of the Company, par value $0.001, as adjusted in accordance with Section 13 of the Plan.
 
“Ten Percent Holder” means a person who owns stock representing more than ten percent (10%) of the combined voting power of all classes of stock of the Company or any Affiliate.
 
“Unrestricted Shares” mean Shares awarded pursuant to Section 8 of the Plan.


 
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3.           Shares Subject to the Plan
 
Subject to the provisions of Section 13 of the Plan, the maximum number of Shares that the Company may issue for all Awards is equal to 10% of the issued and outstanding common stock of the Company, outstanding as of the end of the Company’s most recently completed fiscal year.  For all Awards, the Shares issued pursuant to the Plan may be authorized but unissued Shares, or Shares that the Company has reacquired or otherwise holds in treasury.
 
Shares that are subject to an Award that for any reason expires, is forfeited, is cancelled, or becomes unexercisable, and Shares that are for any other reason not paid or delivered under the Plan shall again, except to the extent prohibited by Applicable Law, be available for subsequent Awards under the Plan.  In addition, the Committee may make future Awards with respect to Shares that the Company retains from otherwise delivering pursuant to an Award either (i) as payment of the exercise price of an Award, or (ii) in order to satisfy the withholding or employment taxes due upon the grant, exercise, vesting or distribution of an Award.  Notwithstanding the foregoing, but subject to adjustments pursuant to Section 13 below, the number of Shares that are available for ISO Awards shall be determined, to the extent required under applicable tax laws, by reducing the number of Shares designated in the preceding paragraph by the number of Shares granted pursuant to Awards (whether or not Shares are issued pursuant to such Awards), provided that any Shares that are either issued or purchased under the Plan and forfeited back to the Plan, or surrendered in payment of the Exercise Price for an Award shall be available for issuance pursuant to future ISO Awards.

4.           Administration
 
(a)            General.   The Committee shall administer the Plan in accordance with its terms, provided that the Board may act in lieu of the Committee on any matter.  The Committee shall hold meetings at such times and places as it may determine and shall make such rules and regulations for the conduct of its business as it deems advisable.  In the absence of a duly appointed Committee or if the Board otherwise chooses to act in lieu of the Committee, the Board shall function as the Committee for all purposes of the Plan.
 
(b)            Committee Composition.   The Board shall appoint the members of the Committee.  If and to the extent permitted by Applicable Law, the Committee may authorize one or more Reporting Persons (or other officers) to make Awards to Eligible Persons who are not Reporting Persons (or other officers whom the Committee has specifically authorized to make Awards).  The Board may at any time appoint additional members to the Committee, remove and replace members of the Committee with or without Cause, and fill vacancies on the Committee however caused.
 
(c)            Powers of the Committee.   Subject to the provisions of the Plan, the Committee shall have the authority, in its sole discretion:
 
(i)  to determine Eligible Persons to whom Awards shall be granted from time to time and the number of Shares, units, or SARs to be covered by each Award;
 
(ii)  to determine, from time to time, the Fair Market Value of Shares;
 
(iii)  to determine, and to set forth in Award Agreements, the terms and conditions of all Awards, including any applicable exercise or purchase price, the installments and conditions under which an Award shall become vested (which may be based on performance), terminated, expired, cancelled, or replaced, and the circumstances for vesting acceleration or waiver of forfeiture restrictions, and other restrictions and limitations;
 
(iv)  to approve the forms of Award Agreements and all other documents, notices and certificates in connection therewith which need not be identical either as to type of Award or among Participants;
 
(v)  to construe and interpret the terms of the Plan and any Award Agreement, to determine the meaning of their terms, and to prescribe, amend, and rescind rules and procedures relating to the Plan and its administration;

 
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(vi)  in order to fulfill the purposes of the Plan and without amending the Plan, modify, cancel, or waive the Company’s rights with respect to any Awards, to adjust or to modify Award Agreements for changes in Applicable Law, and to recognize differences in foreign law, tax policies, or customs; and
 
(vii)  to make all other interpretations and to take all other actions that the Committee may consider necessary or advisable to administer the Plan or to effectuate its purposes.
 
Subject to Applicable Law and the restrictions set forth in the Plan, the Committee may delegate administrative functions to individuals who are Reporting Persons, officers, or Employees of the Company or its Affiliates.
 
(d)            Deference to Committee Determinations.   The Committee shall have the discretion to interpret or construe ambiguous, unclear, or implied (but omitted) terms in any fashion it deems to be appropriate in its sole discretion, and to make any findings of fact needed in the administration of the Plan or Award Agreements.  The Committee’s prior exercise of its discretionary authority shall not obligate it to exercise its authority in a like fashion thereafter.  The Committee’s interpretation and construction of any provision of the Plan, or of any Award or Award Agreement, shall be final, binding, and conclusive.  The validity of any such interpretation, construction, decision or finding of fact shall not be given de novo review if challenged in court, by arbitration, or in any other forum, and shall be upheld unless clearly made in bad faith or materially affected by fraud.
 
(e)            No Liability; Indemnification.   Neither the Board nor any Committee member, nor any Person acting at the direction of the Board or the Committee, shall be liable for any act, omission, interpretation, construction or determination made in good faith with respect to the Plan, any Award or any Award Agreement.  The Company and its Affiliates shall pay or reimburse any member of the Committee, as well as any Director, Employee, or Consultant who takes action in connection with the Plan, for all expenses incurred with respect to the Plan, and to the full extent allowable under Applicable Law shall indemnify each and every one of them for any claims, liabilities, and costs (including reasonable attorney’s fees) arising out of their good faith performance of duties under the Plan.  The Company and its Affiliates may obtain liability insurance for this purpose.

5.           Eligibility
 
(a)            General Rule.   The Committee may grant ISOs only to Employees (including officers who are Employees) of the Company or an Affiliate that is a “parent corporation” or “subsidiary corporation” within the meaning of Section 424 of the Code, and may grant all other Awards to any Eligible Person.  A Participant who has been granted an Award may be granted an additional Award or Awards if the Committee shall so determine, if such person is otherwise an Eligible Person and if otherwise in accordance with the terms of the Plan.
 
(b)            Grant of Awards.   Subject to the express provisions of the Plan, the Committee shall determine from the class of Eligible Persons those individuals to whom Awards under the Plan may be granted, the number of Shares subject to each Award, the price (if any) to be paid for the Shares or the Award and, in the case of Performance Awards, in addition to the matters addressed in Section 10 below, the specific objectives, goals and performance criteria that further define the Performance Award.  Each Award shall be evidenced by an Award Agreement signed by the Company and, if required by the Committee, by the Participant.  The Award Agreement shall set forth the material terms and conditions of the Award established by the Committee, and each Award shall be subject to the terms and conditions set forth in Sections 23, 24, and 25 unless otherwise specifically provided in an Award Agreement.
 
(c)            Limits on Awards.   During any calendar year, no Participant may receive Options and SARs that relate to more than 1,000,000 Shares.  The Committee will adjust this limitation pursuant to Section 13 below.
 
(d)            Replacement Awards.   Subject to Applicable Laws (including any associated Shareholder approval requirements), the Committee may, in its sole discretion and upon such terms as it deems appropriate, require as a condition of the grant of an Award to a Participant that the Participant surrender for cancellation some or all of the Awards that have previously been granted to the Participant under this Plan or otherwise.  An Award that is conditioned upon such surrender may or may not be the same type of Award, may cover the same (or a lesser or greater) number of Shares as such surrendered Award, may have other terms that are determined without regard to

 
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the terms or conditions of such surrendered Award, and may contain any other terms that the Committee deems appropriate.  In the case of Options, these other terms may not involve an Exercise Price that is lower than the Exercise Price of the surrendered Option unless the Company’s shareholders approve the grant itself or the program under which the grant is made pursuant to the Plan.

6.           Option Awards

(a)            Types; Documentation.   The Committee may in its discretion grant ISOs to any Employee and Non-ISOs to any Eligible Person, and shall evidence any such grants in an Award Agreement that is delivered to the Participant.  Each Option shall be designated in the Award Agreement as an ISO or a Non-ISO, and the same Award Agreement may grant both types of Options.  At the sole discretion of the Committee, any Option may be exercisable, in whole or in part, immediately upon the grant thereof, or only after the occurrence of a specified event, or only in installments, which installments may vary.  Options granted under the Plan may contain such terms and provisions not inconsistent with the Plan that the Committee shall deem advisable in its sole and absolute discretion.

(b)            ISO $100,000 Limitation.   To the extent that the aggregate Fair Market Value of Shares with respect to which Options designated as ISOs first become exercisable by a Participant in any calendar year (under this Plan and any other plan of the Company or any Affiliate) exceeds $100,000, such excess Options shall be treated as Non-ISOs.  For purposes of determining whether the $100,000 limit is exceeded, the Fair Market Value of the Shares subject to an ISO shall be determined as of the Grant Date.  In reducing the number of Options treated as ISOs to meet the $100,000 limit, the most recently granted Options shall be reduced first.  In the event that Section 422 of the Code is amended to alter the limitation set forth therein, the limitation of this Section 6(b) shall be automatically adjusted accordingly.
 
(c)            Term of Options.   Each Award Agreement shall specify a term at the end of which the Option automatically expires, subject to earlier termination provisions contained in Section 6(h) hereof; provided, that, the term of any Option may not exceed ten years from the Grant Date.  In the case of an ISO granted to an Employee who is a Ten Percent Holder on the Grant Date, the term of the ISO shall not exceed five years from the Grant Date.
 
(d)            Exercise Price.   The exercise price of an Option shall be determined by the Committee in its sole discretion and shall be set forth in the Award Agreement, provided that (i) if an ISO is granted to an Employee who on the Grant Date is a Ten Percent Holder, the per Share exercise price shall not be less than 110% of the Fair Market Value per Share on the Grant Date, and (ii) for all other Options, such per Share exercise price shall not be less than 100% of the Fair Market Value per Share on the Grant Date.  Neither the Company nor the Committee shall, without shareholder approval, allow for a repricing within the meaning of the federal securities laws applicable to proxy statement disclosures.
 
(e)            Exercise of Option.   The times, circumstances and conditions under which an Option shall be exercisable shall be determined by the Committee in its sole discretion and set forth in the Award Agreement.  The Committee shall have the discretion to determine whether and to what extent the vesting of Options shall be tolled during any unpaid leave of absence; provided, however, that in the absence of such determination, vesting of Options shall be tolled during any such leave approved by the Company.
 
(f)            Minimum Exercise Requirements.   An Option may not be exercised for a fraction of a Share.  The Committee may require in an Award Agreement that an Option be exercised as to a minimum number of Shares, provided that such requirement shall not prevent a Participant from purchasing the full number of Shares as to which the Option is then exercisable.
 
(g)            Methods of Exercise.   Prior to its expiration pursuant to the terms of the applicable Award Agreement, and subject to the times, circumstances and conditions for exercise contained in the applicable Award Agreement, each Option may be exercised, in whole or in part (provided that the Company shall not be required to issue fractional shares), by delivery of written notice of exercise to the secretary of the Company accompanied by the full exercise price of the Shares being purchased.  In the case of an ISO, the Committee shall determine the acceptable methods of payment on the Grant Date and it shall be included in the applicable Award Agreement.  The

 
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methods of payment that the Committee may in its discretion accept or commit to accept in an Award Agreement include:

(i)  cash or check payable to the Company (in U.S. dollars);
 
(ii)  other Shares that (A) are owned by the Participant who is purchasing Shares pursuant to an Option, (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which the Option is being exercised, (C) were not acquired by such Participant pursuant to the exercise of an Option, unless such Shares have been owned by such Participant for at least six months or such other period as the Committee may determine, (D) are all, at the time of such surrender, free and clear of any and all claims, pledges, liens and encumbrances, or any restrictions which would in any manner restrict the transfer of such shares to or by the Company (other than such restrictions as may have existed prior to an issuance of such Shares by the Company to such Participant), and (E) are duly endorsed for transfer to the Company;
 
(iii)  a cashless exercise program that the Committee may approve, from time to time in its discretion, pursuant to which a Participant may concurrently provide irrevocable instructions (A) to such Participant’s broker or dealer to effect the immediate sale of the purchased Shares and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the exercise price of the Option plus all applicable taxes required to be withheld by the Company by reason of such exercise, and (B) to the Company to deliver the certificates for the purchased Shares directly to such broker or dealer in order to complete the sale; or

(iv)  any combination of the foregoing methods of payment.
 
The Company shall not be required to deliver Shares pursuant to the exercise of an Option until payment of the full exercise price therefore is received by the Company.
 
(h)            Termination of Continuous Service.   The Committee may establish and set forth in the applicable Award Agreement the terms and conditions on which an Option shall remain exercisable, if at all, following termination of a Participant’s Continuous Service.  The Committee may waive or modify these provisions at any time.  To the extent that a Participant is not entitled to exercise an Option at the date of his or her termination of Continuous Service, or if the Participant (or other person entitled to exercise the Option) does not exercise the Option to the extent so entitled within the time specified in the Award Agreement or below (as applicable), the Option shall terminate and the Shares underlying the unexercised portion of the Option shall revert to the Plan and become available for future Awards.  In no event may any Option be exercised after the expiration of the Option term as set forth in the Award Agreement.
 
The following provisions shall apply to the extent an Award Agreement does not specify the terms and conditions upon which an Option shall terminate when there is a termination of a Participant’s Continuous Service:
 
(i)            Termination other than Upon Disability or Death or for Cause.   In the event of termination of a Participant’s Continuous Service (other than as a result of Participant’s death, disability, retirement or termination for Cause), the Participant shall have the right to exercise an Option at any time within 90 days following such termination to the extent the Participant was entitled to exercise such Option at the date of such termination.
 
(ii)            Disability.   In the event of termination of a Participant’s Continuous Service as a result of his or her being Disabled, the Participant shall have the right to exercise an Option at any time within one year following such termination to the extent the Participant was entitled to exercise such Option at the date of such termination.
 
(iii)            Retirement.   In the event of termination of a Participant’s Continuous Service as a result of Participant’s retirement, the Participant shall have the right to exercise the Option at any time within six months following such termination to the extent the Participant was entitled to exercise such Option at the date of such termination.

 
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(iv)            Death.   In the event of the death of a Participant during the period of Continuous Service since the Grant Date of an Option, or within thirty days following termination of the Participant’s Continuous Service, the Option may be exercised, at any time within one year following the date of the Participant’s death, by the Participant’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent the right to exercise the Option had vested at the date of death or, if earlier, the date the Participant’s Continuous Service terminated.
 
(v)            Cause.   If the Committee determines that a Participant’s Continuous Service terminated due to Cause, the Participant shall immediately forfeit the right to exercise any Option, and it shall be considered immediately null and void.
 
(i)            Reverse Vesting.   The Committee in its sole discretion may allow a Participant to exercise unvested Options, in which case the Shares then issued shall be Restricted Shares having analogous vesting restrictions to the unvested Options.
 
(j)            Buyout Provisions.   The Committee may at any time offer to buy out an Option, in exchange for a payment in cash or Shares, based on such terms and conditions as the Committee shall establish and communicate to the Participant at the time that such offer is made.

7.           Share Appreciate Rights (SARs)
 
(a)            Grants.   The Committee may in its discretion grant Share Appreciation Rights to any Eligible Person, in any of the following forms:
 
(i)            SARs related to Options.   The Committee may grant SARs either concurrently with the grant of an Option or with respect to an outstanding Option, in which case the SAR shall extend to all or a portion of the Shares covered by the related Option.  An SAR shall entitle the Participant who holds the related Option, upon exercise of the SAR and surrender of the related Option, or portion thereof, to the extent the SAR and related Option each were previously unexercised, to receive payment of an amount determined pursuant to Section 7(e) below.  Any SAR granted in connection with an ISO will contain such terms as may be required to comply with the provisions of Section 422 of the Code and the regulations promulgated thereunder.

(ii)            SARs Independent of Options.   The Committee may grant SARs which are independent of any Option subject to such conditions as the Committee may in its discretion determine, which conditions will be set forth in the applicable Award Agreement.

(iii)            Limited SARs.   The Committee may grant SARs exercisable only upon or in respect of a Change in Control or any other specified event, and such limited SARs may relate to or operate in tandem or combination with or substitution for Options or other SARs, or on a stand-alone basis, and may be payable in cash or Shares based on the spread between the exercise price of the SAR, and (A) a price based upon or equal to the Fair Market Value of the Shares during a specified period, at a specified time within a specified period before, after or including the date of such event, or (B) a price related to consideration payable to Company’s shareholders generally in connection with the event.
 
(b)            Exercise Price.   The per Share exercise price of an SAR shall be determined in the sole discretion of the Committee, shall be set forth in the applicable Award Agreement, and shall be no less than 100% of the Fair Market Value of one Share.  The exercise price of an SAR related to an Option shall be the same as the exercise price of the related Option.  Neither the Company nor the Committee shall, without shareholder approval, allow for a repricing within the meaning of federal securities laws applicable to proxy statement disclosures.
 
(c)            Exercise of SARs.   Unless the Award Agreement otherwise provides, an SAR related to an Option will be exercisable at such time or times, and to the extent, that the related Option will be exercisable; provided that the Award Agreement shall not, without the approval of the shareholders of the Company, provide for a vesting period for the exercise of the SAR that is more favorable to the Participant than the exercise period for the related Option.  An SAR may not have a term exceeding ten years from its Grant Date.  An SAR granted independently of

 
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any other Award will be exercisable pursuant to the terms of the Award Agreement, but shall not, without the approval of the shareholders of the Company, provide for a vesting period for the exercise of the SAR that is more favorable to the Participant than the exercise period for the related Option.  Whether an SAR is related to an Option or is granted independently, the SAR may only be exercised when the Fair Market Value of the Shares underlying the SAR exceeds the exercise price of the SAR.
 
(d)            Effect on Available Shares.   All SARs that may be settled in shares of the Company’s stock shall be counted in full against the number of shares available for award under the Plan, regardless of the number of shares actually issued upon settlement of the SARs.
 
(e)            Payment.   Upon exercise of an SAR related to an Option and the attendant surrender of an exercisable portion of any related Award, the Participant will be entitled to receive payment of an amount determined by multiplying —
 
(i)  the excess of the Fair Market Value of a Share on the date of exercise of the SAR over the exercise price per Share of the SAR, by

(ii)  the number of Shares with respect to which the SAR has been exercised.
 
Notwithstanding the foregoing, an SAR granted independently of an Option (i) may limit the amount payable to the Participant to a percentage, specified in the Award Agreement but not exceeding one-hundred percent (100%), of the amount determined pursuant to the preceding sentence, and (ii) shall be subject to any payment or other restrictions that the Committee may at any time impose in its discretion, including restrictions intended to conform the SARs with Section 409A of the Code.
 
(f)            Form and Terms of Payment.   Subject to Applicable Law, the Committee may, in its sole discretion, settle the amount determined under Section 7(e) above solely in cash, solely in Shares (valued at their Fair Market Value on the date of exercise of the SAR), or partly in cash and partly in Shares, with cash paid in lieu of fractional shares.  Unless otherwise provided in an Award Agreement, all SARs shall be settled in Shares as soon as practicable after exercise.
 
(g)            Termination of Employment or Consulting Relationship.   The Committee shall establish and set forth in the applicable Award Agreement the terms and conditions on which an SAR shall remain exercisable, if at all, following termination of a Participant’s Continuous Service.  The provisions of Section 6(h) above shall apply to the extent an Award Agreement does not specify the terms and conditions upon which an SAR shall terminate when there is a termination of a Participant’s Continuous Service.
 
(h)            Buy out.   The Committee has the same discretion to buy out SARs as it has to take such actions pursuant to Section 6(j) above with respect to Options.

8.           Restricted Shares, Restricted Share Units, and Unrestricted Shares
 
(a)            Grants.   The Committee may in its sole discretion grant restricted shares (“Restricted Shares”) to any Eligible Person and shall evidence such grant in an Award Agreement that is delivered to the Participant and that sets forth the number of Restricted Shares, the purchase price for such Restricted Shares (if any), and the terms upon which the Restricted Shares may become vested.  In addition, the Company may in its discretion grant the right to receive Shares after certain vesting requirements are met (“Restricted Share Units”) to any Eligible Person and shall evidence such grant in an Award Agreement that is delivered to the Participant which sets forth the number of Shares (or formula, that may be based on future performance or conditions, for determining the number of Shares) that the Participant shall be entitled to receive upon vesting and the terms upon which the Shares subject to a Restricted Share Unit may become vested.  The Committee may condition any Award of Restricted Shares or Restricted Share Units to a Participant on receiving from the Participant such further assurances and documents as the Committee may require to enforce the restrictions.  In addition, the Committee may grant Awards hereunder in the form of unrestricted shares (“Unrestricted Shares”), which shall vest in full upon the date of grant or such other date as the Committee may determine or which the Committee may issue pursuant to any program under which one

 
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or more Eligible Persons (selected by the Committee in its sole discretion) elect to receive Unrestricted Shares in lieu of cash bonuses that would otherwise be paid.
 
(b)            Vesting and Forfeiture.   The Committee shall set forth in an Award Agreement granting Restricted Shares or Restricted Share Units, the terms and conditions under which the Participant’s interest in the Restricted Shares or the Shares subject to Restricted Share Units will become vested and non-forfeitable.  Except as set forth in the applicable Award Agreement or the Committee otherwise determines, upon termination of a Participant’s Continuous Service for any other reason, the Participant shall forfeit his or her Restricted Shares and Restricted Share Units; provided that if a Participant purchases the Restricted Shares and forfeits them for any reason, the Company shall return the purchase price to the Participant only if and to the extent set forth in an Award Agreement.
 
(c)            Issuance of Restricted Shares Prior to Vesting.   The Company shall issue stock certificates that evidence Restricted Shares pending the lapse of applicable restrictions, and that bear a legend making appropriate reference to such restrictions.  Except as set forth in the applicable Award Agreement or the Committee otherwise determines, the Company or a third party that the Company designates shall hold such Restricted Shares and any dividends that accrue with respect to Restricted Shares pursuant to Section 8(e) below.
 
(d)            Issuance of Shares upon Vesting.   As soon as practicable after vesting of a Participant’s Restricted Shares (or Shares underlying Restricted Share Units) and the Participant’s satisfaction of applicable tax withholding requirements, the Company shall release to the Participant, free from the vesting restrictions, one Share for each vested Restricted Share (or issue one Share free of the vesting restriction for each vested Restricted Share Unit), unless an Award Agreement provides otherwise.  No fractional shares shall be distributed, and cash shall be paid in lieu thereof.
 
(e)            Dividends Payable on Vesting.   Whenever Shares are released to a Participant or duly-authorized transferee pursuant to Section 8(d) above as a result of the vesting of Restricted Shares or the Shares underlying Restricted Share Units are issued to a Participant pursuant to Section 8(d) above, such Participant or duly-authorized transferee shall also be entitled to receive (unless otherwise provided in the Award Agreement), with respect to each Share released or issued, an amount equal to any cash dividends (plus, in the sole discretion of the Committee, simple interest at a rate as the Committee may determine) and a number of Shares equal to any stock dividends, which were declared and paid to the holders of Shares between the Grant Date and the date such Share is released from the vesting restrictions in the case of Restricted Shares or issued in the case of Restricted Share Units.
 
(f)            Section 83(b) Elections.   A Participant may make an election under Section 83(b) of the Code (the “Section 83(b) Election”) with respect to Restricted Shares.  If a Participant who has received Restricted Share Units provides the Committee with written notice of his or her intention to make a Section 83(b) Election with respect to the Shares subject to such Restricted Share Units, the Committee may in its discretion convert the Participant’s Restricted Share Units into Restricted Shares, on a one-for-one basis, in full satisfaction of the Participant’s Restricted Share Unit Award.  The Participant may then make a Section 83(b) Election with respect to those Restricted Shares.  Shares with respect to which a Participant makes a Section 83(b) Election shall not be eligible for deferral pursuant to Section 9 below.
 
(g)            Deferral Elections.   At any time within the thirty-day period (or other shorter or longer period that the Committee selects in its sole discretion) in which a Participant who is a member of a select group of management or highly compensated employees (within the meaning of the Code) receives an Award of either Restricted Shares or Restricted Share Units, the Committee may permit the Participant to irrevocably elect, on a form provided by and acceptable to the Committee, to defer the receipt of all or a percentage of the Shares that would otherwise be transferred to the Participant upon the vesting of such Award.  If the Participant makes this election, the Shares subject to the election, and any associated dividends and interest, shall be credited to an account established pursuant to Section 9 hereof on the date such Shares would otherwise have been released or issued to the Participant pursuant to Section 8(d) above.

9.           Deferred Share Units
 
(a)            Elections to Defer.   The Committee may permit any Eligible Person who is a Director, Consultant or member of a select group of management or highly compensated employees (within the meaning of the Code) to

 
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irrevocably elect, on a form provided by and acceptable to the Committee (the “Election Form”), to forego the receipt of cash or other compensation (including the Shares deliverable pursuant to any Award other than Restricted Shares for which a Section 83(b) Election has been made), and in lieu thereof to have the Company credit to an internal Plan account (the “Account”) a number of deferred share units (“Deferred Share Units”) having a Fair Market Value equal to the Shares and other compensation deferred.  These credits will be made at the end of each calendar month during which compensation is deferred.  Each Election Form shall take effect on the first day of the next calendar year (or on the first day of the next calendar month in the case of an initial election by a Participant who first becomes eligible to defer hereunder) after its delivery to the Company, subject to Section 8(g) regarding deferral of Restricted Shares and Restricted Share Units and to Section 10(e) regarding deferral of Performance Awards, unless the Company sends the Participant a written notice explaining why the Election Form is invalid within five business days after the Company receives it.  Notwithstanding the foregoing sentence: (i) Election Forms shall be ineffective with respect to any compensation that a Participant earns before the date on which the Company receives the Election Form, and (ii) the Committee may unilaterally make awards in the form of Deferred Share Units, regardless of whether or not the Participant foregoes other compensation.
 
(b)            Vesting.   Unless an Award Agreement expressly provides otherwise, each Participant shall be 100% vested at all times in any Shares subject to Deferred Share Units.
 
(c)            Issuances of Shares.   The Company shall provide a Participant with one Share for each Deferred Share Unit in five substantially equal annual installments that are issued before the last day of each of the five calendar years that end after the date on which the Participant’s Continuous Service terminates, unless —
 
(i)  the Participant has properly elected a different form of distribution, on a form approved by the Committee, that permits the Participant to select any combination of a lump sum and annual installments that are completed within ten years following termination of the Participant’s Continuous Service, and
 
(ii)  the Company received the Participant’s distribution election form at the time the Participant elects to defer the receipt of cash or other compensation pursuant to Section 9(a), provided that such election may be changed through any subsequent election that (i) is delivered to the Company at least one year before the date on which distributions are otherwise scheduled to commence pursuant to the Participant’s election, and (ii) defers the commencement of distributions by at least five years from the originally scheduled commencement date.

Fractional shares shall not be issued, and instead shall be paid out in cash.
 
(d)            Crediting of Dividends.   Whenever Shares are issued to a Participant pursuant to Section 9(c) above, such Participant shall also be entitled to receive, with respect to each Share issued, a cash amount equal to any cash dividends (plus simple interest at a rate of five percent per annum, or such other reasonable rate as the Committee may determine), and a number of Shares equal to any stock dividends which were declared and paid to the holders of Shares between the Grant Date and the date such Share is issued.
 
(e)            Emergency Withdrawals.   In the event a Participant suffers an unforeseeable emergency within the contemplation of this Section and Section 409A of the Code, the Participant may apply to the Company for an immediate distribution of all or a portion of the Participant’s Deferred Share Units.  The unforeseeable emergency must result from a sudden and unexpected illness or accident of the Participant, the Participant’s spouse, or a dependent (within the meaning of Section 152(a) of the Code) of the Participant, casualty loss of the Participant’s property, or other similar extraordinary and unforeseeable conditions beyond the control of the Participant.  Examples of purposes which are not considered unforeseeable emergencies include post-secondary school expenses or the desire to purchase a residence.  In no event will a distribution be made to the extent the unforeseeable emergency could be relieved through reimbursement or compensation by insurance or otherwise, or by liquidation of the Participant’s nonessential assets to the extent such liquidation would not itself cause a severe financial hardship.  The amount of any distribution hereunder shall be limited to the amount necessary to relieve the Participant’s unforeseeable emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution.  The Committee shall determine whether a Participant has a qualifying unforeseeable emergency and the amount which qualifies for distribution, if any.  The Committee may require evidence of the purpose and amount of the need, and may establish such application or other procedures as it deems appropriate.

 
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(f)            Unsecured Rights to Deferred Compensation.   A Participant’s right to Deferred Share Units shall at all times constitute an unsecured promise of the Company to pay benefits as they come due.  The right of the Participant or the Participant’s duly-authorized transferee to receive benefits hereunder shall be solely an unsecured claim against the general assets of the Company.  Neither the Participant nor the Participant’s duly-authorized transferee shall have any claim against or rights in any specific assets, shares, or other funds of the Company.

10.           Performance Awards
 
(a)            Performance Units.   Subject to the limitations set forth in paragraph (c) hereof, the Committee may in its discretion grant Performance Units to any Eligible Person and shall evidence such grant in an Award Agreement that is delivered to the Participant which sets forth the terms and conditions of the Award.
 
(b)            Performance Compensation Awards.   Subject to the limitations set forth in paragraph (c) hereof, the Committee may, at the time of grant of a Performance Unit, designate such Award as a “Performance Compensation Award” (payable in cash or Shares) in order that such Award constitutes “qualified performance-based compensation” under Code Section 162(m), in which event the Committee shall have the power to grant such Performance Compensation Award upon terms and conditions that qualify it as “qualified performance-based compensation” within the meaning of Code Section 162(m).  With respect to each such Performance Compensation Award, the Committee shall establish, in writing within the time required under Code Section 162(m), a “Performance Period,” “Performance Measure(s)”, and “Performance Formula(e)” (each such term being hereinafter defined).  Once established for a Performance Period, the Performance Measure(s) and Performance Formula(e) shall not be amended or otherwise modified to the extent such amendment or modification would cause the compensation payable pursuant to the Award to fail to constitute qualified performance-based compensation under Code Section 162(m).
 
A Participant shall be eligible to receive payment in respect of a Performance Compensation Award only to the extent that the Performance Measure(s) for such Award is achieved and the Performance Formula(e) as applied against such Performance Measure(s) determines that all or some portion of such Participant’s Award has been earned for the Performance Period.  As soon as practicable after the close of each Performance Period, the Committee shall review and certify in writing whether, and to what extent, the Performance Measure(s) for the Performance Period have been achieved and, if so, determine and certify in writing the amount of the Performance Compensation Award to be paid to the Participant and, in so doing, may use negative discretion to decrease, but not increase, the amount of the Award otherwise payable to the Participant based upon such performance.
 
(c)            Limitations on Awards.   The maximum Performance Unit Award and the maximum Performance Compensation Award that any one Participant may receive for any one Performance Period shall not together exceed 1,000,000 Shares and $1,000,000 in cash.  The Committee shall have the discretion to provide in any Award Agreement that any amounts earned in excess of these limitations will either be credited as Deferred Share Units, or as deferred cash compensation under a separate plan of the Company (provided in the latter case that such deferred compensation either bears a reasonable rate of interest or has a value based on one or more predetermined actual investments).  Any amounts for which payment to the Participant is deferred pursuant to the preceding sentence shall be paid to the Participant in a future year or years not earlier than, and only to the extent that, the Participant is either not receiving compensation in excess of these limits for a Performance Period, or is not subject to the restrictions set forth under Section 162(b) of the Code.

(d)            Definitions.
 
(i)  ”Performance Formula” means, for a Performance Period, one or more objective formulas or standards established by the Committee for purposes of determining whether or the extent to which an Award has been earned based on the level of performance attained or to be attained with respect to one or more Performance Measure(s).  Performance Formulae may vary from Performance Period to Performance Period and from Participant to Participant and may be established on a stand-alone basis, in tandem or in the alternative.
 
(ii)  ”Performance Measure” means one or more of the following selected by the Committee to measure Company, Affiliate, and/or business unit performance for a Performance Period, whether in

 
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absolute or relative terms (including, without limitation, terms relative to a peer group or index): basic, diluted, or adjusted earnings per share; sales or revenue; earnings before interest, taxes, and other adjustments (in total or on a per share basis); basic or adjusted net income; returns on equity, assets, capital, revenue or similar measure; economic value added; working capital; total shareholder return; and product development, product market share, research, licensing, litigation, human resources, information services, mergers, acquisitions, sales of assets of Affiliates or business units.  Each such measure shall be, to the extent applicable, determined in accordance with generally accepted accounting principles as consistently applied by the Company (or such other standard applied by the Committee) and, if so determined by the Committee, and in the case of a Performance Compensation Award, to the extent permitted under Code Section 162(m), adjusted to omit the effects of extraordinary items, gain or loss on the disposal of a business segment, unusual or infrequently occurring events and transactions and cumulative effects of changes in accounting principles.  Performance Measures may vary from Performance Period to Performance Period and from Participant to Participant, and may be established on a stand-alone basis, in tandem or in the alternative.

(iii)  “Performance Period” means one or more periods of time (of not less than one fiscal year of the Company), as the Committee may designate, over which the attainment of one or more Performance Measure(s) will be measured for the purpose of determining a Participant’s rights in respect of an Award.
 
(e)            Deferral Elections.   At any time prior to the date that is at least six months before the close of a Performance Period (or shorter or longer period that the Committee selects) with respect to an Award of either Performance Units or Performance Compensation, the Committee may permit a Participant who is a member of a select group of management or highly compensated employees (within the meaning of the Code) to irrevocably elect, on a form provided by and acceptable to the Committee, to defer the receipt of all or a percentage of the cash or Shares that would otherwise be transferred to the Participant upon the vesting of such Award.  If the Participant makes this election, the cash or Shares subject to the election, and any associated interest and dividends, shall be credited to an account established pursuant to Section 9 hereof on the date such cash or Shares would otherwise have been released or issued to the Participant pursuant to Section 10(a) or Section 10(b) above.

11.           Taxes
 
(a)            General.   As a condition to the issuance or distribution of Shares pursuant to the Plan, the Participant (or in the case of the Participant’s death, the person who succeeds to the Participant’s rights) shall make such arrangements as the Company may require for the satisfaction of any applicable federal, state, local or foreign withholding tax obligations that may arise in connection with the Award and the issuance of Shares.  The Company shall not be required to issue any Shares until such obligations are satisfied.  If the Committee allows the withholding or surrender of Shares to satisfy a Participant’s tax withholding obligations, the Committee shall not allow Shares to be withheld in an amount that exceeds the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes.
 
(b)            Default Rule for Employees.   In the absence of any other arrangement, an Employee shall be deemed to have directed the Company to withhold or collect from his or her cash compensation an amount sufficient to satisfy such tax obligations from the next payroll payment otherwise payable after the date of the exercise of an Award.
 
(c)            Special Rules.   In the case of a Participant other than an Employee (or in the case of an Employee where the next payroll payment is not sufficient to satisfy such tax obligations, with respect to any remaining tax obligations), in the absence of any other arrangement and to the extent permitted under Applicable Law, the Participant shall be deemed to have elected to have the Company withhold from the Shares or cash to be issued pursuant to an Award that number of Shares having a Fair Market Value determined as of the applicable Tax Date (as defined below) or cash equal to the amount required to be withheld.  For purposes of this Section 11, the Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined under the Applicable Law (the “Tax Date”).
 
(d)            Surrender of Shares.   If permitted by the Committee, in its discretion, a Participant may satisfy the minimum applicable tax withholding and employment tax obligations associated with an Award by surrendering

 
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Shares to the Company (including Shares that would otherwise be issued pursuant to the Award) that have a Fair Market Value determined as of the applicable Tax Date equal to the amount required to be withheld.  In the case of Shares previously acquired from the Company that are surrendered under this Section 11, such Shares must have been owned by the Participant for more than six months on the date of surrender (or such longer period of time the Company may in its discretion require).
 
(e)            Income Taxes and Deferred Compensation.   Participants are solely responsible and liable for the satisfaction of all taxes and penalties that may arise in connection with Awards (including any taxes arising under Section 409A of the Code), and the Company shall not have any obligation to indemnify or otherwise hold any Participant harmless from any or all of such taxes.  The Committee shall have the discretion to organize any deferral program, to require deferral election forms, and to grant or to unilaterally modify any Award in a manner that (i) conforms with the requirements of Section 409A of the Code with respect to compensation that is deferred and that vests after December 31, 2004, (ii) that voids any Participant election to the extent it would violate Section 409A of the Code, and (iii) for any distribution election that would violate Section 409A of the Code, to make distributions pursuant to the Award at the earliest to occur of a distribution event that is allowable under Section 409A of the Code or any distribution event that is both allowable under Section 409A of the Code and is elected by the Participant, subject to any valid second election to defer, provided that the Committee permits second elections to defer in accordance with Section 409A(a)(4)(C).  The Committee shall have the sole discretion to interpret the requirements of the Code, including Section 409A, for purposes of the Plan and all Awards.

12.           Non-Transferability of Awards
 
(a)            General.   Except as set forth in this Section 12, or as otherwise approved by the Committee, Awards may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution.  The designation of a beneficiary by a Participant will not constitute a transfer.  An Award may be exercised, during the lifetime of the holder of an Award, only by such holder, the duly-authorized legal representative of a Participant who is Disabled, or a transferee permitted by this Section 12.
 
(b)            Limited Transferability Rights.   Notwithstanding anything else in this Section 12, the Committee may in its discretion provide in an Award Agreement that an Award other than an ISO may be transferred, on such terms and conditions as the Committee deems appropriate, either (i) by instrument to the Participant’s “Immediate Family” (as defined below), (ii) by instrument to an inter vivos or testamentary trust (or other entity) in which the Award is to be passed to the Participant’s designated beneficiaries, or (iii) by gift to charitable institutions.  Any transferee of the Participant’s rights shall succeed and be subject to all of the terms of the applicable Award Agreement and the Plan.  “Immediate Family” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships.

13.           Adjustments Upon Changes in Capitalization, Merger or Certain Other Transactions
 
(a)            Changes in Capitalization.   The Committee shall equitably adjust the number of Shares covered by each outstanding Award, and the number of Shares that have been authorized for issuance under the Plan but as to which no Awards have yet been granted or that have been returned to the Plan upon cancellation, forfeiture, or expiration of an Award, as well as the price per Share covered by each such outstanding Award, to reflect any increase or decrease in the number of issued Shares resulting from a stock-split, reverse stock-split, stock dividend, combination, recapitalization or reclassification of the Shares, or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company.  In the event of any such transaction or event, the Committee may provide in substitution for any or all outstanding Options under the Plan such alternative consideration (including securities of any surviving entity) as it may in good faith determine to be equitable under the circumstances and may require in connection therewith the surrender of all Options so replaced.  In any case, such substitution of securities shall not require the consent of any person who is granted Options pursuant to the Plan.  Except as expressly provided herein, or in an Award Agreement, if the Company issues for consideration shares of stock of any class or securities convertible into shares of stock of any class, the issuance shall not affect, and no adjustment by reason thereof shall be required to be made with respect to the number or price of Shares subject to any Award.


 
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(b)            Dissolution or Liquidation.   In the event of the dissolution or liquidation of the Company other than as part of a Change of Control, each Award will terminate immediately prior to the consummation of such action, subject to the ability of the Committee to exercise any discretion authorized in the case of a Change in Control.
 
(c)            Change in Control.   In the event of a Change in Control, the Committee may in its sole and absolute discretion and authority, without obtaining the approval or consent of the Company’s shareholders or any Participant with respect to his or her outstanding Awards, take one or more of the following actions:
 
(i)  arrange for or otherwise provide that each outstanding Award shall be assumed or a substantially similar award shall be substituted by a successor corporation or a parent or subsidiary of such successor corporation (the “Successor Corporation”);
 
(ii)  accelerate the vesting of Awards so that Awards shall vest (and, to the extent applicable, become exercisable) as to the Shares that otherwise would have been unvested and provide that repurchase rights of the Company with respect to Shares issued upon exercise of an Award shall lapse as to the Shares subject to such repurchase right;
 
(iii)  arrange or otherwise provide for the payment of cash or other consideration to Participants in exchange for the satisfaction and cancellation of outstanding Awards;
 
(iv)  terminate upon the consummation of the transaction, provided that the Committee may in its sole discretion provide for vesting of all or some outstanding Awards in full as of a date immediately prior to consummation of the Change of Control.  To the extent that an Award is not exercised prior to consummation of a transaction in which the Award is not being assumed or substituted, such Award shall terminate upon such consummation; or
 
(v)  make such other modifications, adjustments or amendments to outstanding Awards or this Plan as the Committee deems necessary or appropriate, subject however to the terms of Section 15(a) below.
 
Notwithstanding the above, in the event a Participant holding an Award assumed or substituted by the Successor Corporation in a Change in Control is Involuntarily Terminated by the Successor Corporation in connection with, or within 12 months following consummation of, the Change in Control, then any assumed or substituted Award held by the terminated Participant at the time of termination shall accelerate and become fully vested (and exercisable in full in the case of Options and SARs), and any repurchase right applicable to any Shares shall lapse in full, unless an Award Agreement provides for a more restrictive acceleration or vesting schedule or more restrictive limitations on the lapse of repurchase rights or otherwise places additional restrictions, limitations and conditions on an Award.  The acceleration of vesting and lapse of repurchase rights provided for in the previous sentence shall occur immediately prior to the effective date of the Participant’s termination, unless an Award Agreement provides otherwise.
 
(d)            Certain Distributions.   In the event of any distribution to the Company’s shareholders of securities of any other entity or other assets (other than dividends payable in cash or stock of the Company) without receipt of consideration by the Company, the Committee may, in its discretion, appropriately adjust the price per Share covered by each outstanding Award to reflect the effect of such distribution.

14.           Time of Granting Awards
 
The date of grant (“Grant Date”) of an Award shall be the date on which the Committee makes the determination granting such Award or such other date as is determined by the Committee, provided that in the case of an ISO, the Grant Date shall be the later of the date on which the Committee makes the determination granting such ISO or the date of commencement of the Participant’s employment relationship with the Company.


 
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15.           Modification of Awards and Substitution of Options
 
(a)            Modification, Extension, and Renewal of Awards.   Within the limitations of the Plan, the Committee may modify an Award to accelerate the rate at which an Option or SAR may be exercised (including without limitation permitting an Option or SAR to be exercised in full without regard to the installment or vesting provisions of the applicable Award Agreement or whether the Option or SAR is at the time exercisable, to the extent it has not previously been exercised), to accelerate the vesting of any Award, to extend or renew outstanding Awards or to accept the cancellation of outstanding Awards to the extent not previously exercised.  However, the Committee may not cancel an outstanding option that is underwater for the purpose of reissuing the option to the participant at a lower exercise price or granting a replacement award of a different type.  Notwithstanding the foregoing provision, no modification of an outstanding Award shall materially and adversely affect such Participant’s rights thereunder, unless either the Participant provides written consent or there is an express Plan provision permitting the Committee to act unilaterally to make the modification.
 
(b)            Substitution of Options.   Notwithstanding any inconsistent provisions or limits under the Plan, in the event the Company or an Affiliate acquires (whether by purchase, merger or otherwise) all or substantially all of outstanding capital stock or assets of another corporation or in the event of any reorganization or other transaction qualifying under Section 424 of the Code, the Committee may, in accordance with the provisions of that Section, substitute Options for options under the plan of the acquired company provided (i) the excess of the aggregate fair market value of the shares subject to an option immediately after the substitution over the aggregate option price of such shares is not more than the similar excess immediately before such substitution and (ii) the new option does not give persons additional benefits, including any extension of the exercise period.

16.           Term of Plan
 
The Plan shall continue in effect for a term of ten (10) years from its effective date as determined under Section 20 below, unless the Plan is sooner terminated under Section 17 below.

17.           Amendment and Termination of the Plan
 
(a)            Authority to Amend or Terminate.   Subject to Applicable Laws, the Board may from time to time amend, alter, suspend, discontinue, or terminate the Plan.
 
(b)            Effect of Amendment or Termination.   No amendment, suspension, or termination of the Plan shall materially and adversely affect Awards already granted unless either it relates to an adjustment pursuant to Section 13 above, or it is otherwise mutually agreed between the Participant and the Committee, which agreement must be in writing and signed by the Participant and the Company.  Notwithstanding the foregoing, the Committee may amend the Plan to eliminate provisions which are no longer necessary as a result of changes in tax or securities laws or regulations, or in the interpretation thereof.

18.           Conditions Upon Issuance of Shares
 
Notwithstanding any other provision of the Plan or any agreement entered into by the Company pursuant to the Plan, the Company shall not be obligated, and shall have no liability for failure, to issue or deliver any Shares under the Plan unless such issuance or delivery would comply with Applicable Law, with such compliance determined by the Company in consultation with its legal counsel.

19.           Reservation of Shares
 
The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

20.           Effective Date
 
This Plan shall become effective on the date on which it has received approval by a vote of a majority of the votes cast at a duly held meeting of the Company’s shareholders (or by such other shareholder vote that the

 
17

 

Administrator determines to be sufficient for the issuance of Shares or stock options according to the Company’s governing documents and applicable state law).

21.           Controlling Law
 
All disputes relating to or arising from the Plan shall be governed by the internal substantive laws (and not the laws of conflicts of laws) of the State of Delaware, to the extent not preempted by United States federal law.  If any provision of this Plan is held by a court of competent jurisdiction to be invalid and unenforceable, the remaining provisions shall continue to be fully effective.

22.           Laws And Regulations
 
(a)            U.S. Securities Laws.   This Plan, the grant of Awards, and the exercise of Options and SARs under this Plan, and the obligation of the Company to sell or deliver any of its securities (including, without limitation, Options, Restricted Shares, Restricted Share Units, Deferred Share Units, and Shares) under this Plan shall be subject to all Applicable Law.  In the event that the Shares are not registered under the Securities Act of 1933, as amended (the “Act”), or any applicable state securities laws prior to the delivery of such Shares, the Company may require, as a condition to the issuance thereof, that the persons to whom Shares are to be issued represent and warrant in writing to the Company that such Shares are being acquired by him or her for investment for his or her own account and not with a view to, for resale in connection with, or with an intent of participating directly or indirectly in, any distribution of such Shares within the meaning of the Act, and a legend to that effect may be placed on the certificates representing the Shares.
 
(b)            Other Jurisdictions.   To facilitate the making of any grant of an Award under this Plan, the Committee may provide for such special terms for Awards to Participants who are foreign nationals or who are employed by the Company or any Affiliate outside of the United States of America as the Committee may consider necessary or appropriate to accommodate differences in local law, tax policy or custom.  The Company may adopt rules and procedures relating to the operation and administration of this Plan to accommodate the specific requirements of local laws and procedures of particular countries.  Without limiting the foregoing, the Company is specifically authorized to adopt rules and procedures regarding the conversion of local currency, taxes, withholding procedures and handling of stock certificates which vary with the customs and requirements of particular countries.  The Company may adopt sub-plans and establish escrow accounts and trusts as may be appropriate or applicable to particular locations and countries.

23.           No Shareholder Rights
 
Neither a Participant nor any transferee of a Participant shall have any rights as a shareholder of the Company with respect to any Shares underlying any Award until the date of issuance of a share certificate to a Participant or a transferee of a Participant for such Shares in accordance with the Company’s governing instruments and Applicable Law.  Prior to the issuance of Shares pursuant to an Award, a Participant shall not have the right to vote or to receive dividends or any other rights as a shareholder with respect to the Shares underlying the Award, notwithstanding its exercise in the case of Options and SARs.  No adjustment will be made for a dividend or other right that is determined based on a record date prior to the date the stock certificate is issued, except as otherwise specifically provided for in this Plan.

24.           No Employment Rights
 
The Plan shall not confer upon any Participant any right to continue an employment, service or consulting relationship with the Company, nor shall it affect in any way a Participant’s right or the Company’s right to terminate the Participant’s employment, service, or consulting relationship at any time, with or without Cause.
 
25.           Termination, Rescission and Recapture
 
(a)           Each Award under the Plan is intended to align the Participant’s long-term interest with those of the Company.  If the Participant engages in certain activities discussed below, either during employment or after employment with the Company terminates for any reason, the Participant is acting contrary to the long-term interests

 
18

 

of the Company.  Accordingly, except as otherwise expressly provided in the Award Agreement, the Company may terminate any outstanding, unexercised, unexpired, unpaid, or deferred Awards (“Termination”), rescind any exercise, payment or delivery pursuant to the Award (“Rescission”), or recapture any Common Stock (whether restricted or unrestricted) or proceeds from the Participant’s sale of Shares issued pursuant to the Award (“Recapture”), if the Participant does not comply with the conditions of subsections (b) and (c) hereof (collectively, the “Conditions”).
 
(b)           A Participant shall not during his or her Continuous Service or within one year thereafter, without the Company’s prior written authorization, disclose to anyone outside the Company, or use in other than the Company’s business, any proprietary or confidential information or material, as those or other similar terms are used in any applicable patent, confidentiality, inventions, secrecy, or other agreement between the Participant and the Company with regard to any such proprietary or confidential information or material.  Notwithstanding the foregoing provision, to the extent such proprietary or confidential information or material constitutes a “trade secret” under applicable law, Participant’s obligations hereunder shall continue until such information or material is no longer a trade secret.
 
(c)           Pursuant to any agreement between the Participant and the Company with regard to intellectual property (including but not limited to patents, trademarks, copyrights, trade secrets, inventions, developments, improvements, proprietary information, confidential business and personnel information), a Participant shall promptly disclose and assign to the Company or its designee all right, title, and interest in such intellectual property, and shall take all reasonable steps necessary to enable the Company to secure all right, title and interest in such intellectual property in the United States and in any foreign country.
 
(d)           Upon exercise, payment, or delivery of cash or Common Stock pursuant to an Award, the Participant shall certify on a form acceptable to the Company that he or she is in compliance with the terms and conditions of the Plan and, if a severance of Continuous Service has occurred for any reason, shall state the name and address of the Participant’s then-current employer or any entity for which the Participant performs business services and the Participant’s title, and shall identify any organization or business in which the Participant owns a greater-than-five-percent equity interest.
 
(e)           If the Company determines, in its sole and absolute discretion, that (i) a Participant has violated any of the Conditions or (ii) during his or her Continuous Service, or within one year after its termination for any reason, a Participant (a) has participated in any business or enterprise which is a direct competitor of the Company or its Affiliates and which is located in the United States, Canada or Mexico; (b) has solicited any non-administrative employee of the Company to terminate employment with the Company; or (c) has engaged in activities which are materially prejudicial to or in conflict with the interests of the Company, including any breaches of fiduciary duty or the duty of loyalty, then the Company may, in its sole and absolute discretion, impose a Termination, Rescission, and/or Recapture with respect to any or all of the Participant’s relevant Awards, Shares, and the proceeds thereof.  For purposes of this subsection, “participated” means performed services that are the same or substantially similar to the services Participant provides or has provided to the Company or its Affiliates.
 
(f)           Within ten days after receiving notice from the Company of any such activity, the Participant shall deliver to the Company the Shares acquired pursuant to the Award, or, if Participant has sold the Shares, the gain realized, or payment received as a result of the rescinded exercise, payment, or delivery; provided, that if the Participant returns Shares that the Participant purchased pursuant to the exercise of an Option (or the gains realized from the sale of such Common Stock), the Company shall promptly refund the exercise price, without earnings, that the Participant paid for the Shares.  Any payment by the Participant to the Company pursuant to this Section 21 shall be made either in cash or by returning to the Company the number of Shares that the Participant received in connection with the rescinded exercise, payment, or delivery.  It shall not be a basis for Termination, Rescission or Recapture if after termination of a Participant’s Continuous Service, the Participant purchases, as an investment or otherwise, stock or other securities of such an organization or business, so long as (i) such stock or other securities are listed upon a recognized securities exchange or traded over-the-counter, and (ii) such investment does not represent more than a five percent (5%) equity interest in the organization or business.
 
(g)           Notwithstanding the foregoing provisions of this Section, the Company has sole and absolute discretion not to require Termination, Rescission and/or Recapture, and its determination not to require Termination,

 
19

 

Rescission and/or Recapture with respect to any particular act by a particular Participant or Award shall not in any way reduce or eliminate the Company’s authority to require Termination, Rescission and/or Recapture with respect to any other act or Participant or Award.  Nothing in this Section shall be construed to impose obligations on the Participant to refrain from engaging in lawful competition with the Company after the termination of employment that does not violate subsections (b) or (c) of this Section, other than any obligations that are part of any separate agreement between the Company and the Participant or that arise under applicable law.
 
(h)           All administrative and discretionary authority given to the Company under this Section shall be exercised by the most senior human resources executive of the Company or such other person or committee (including without limitation the Committee) as the Committee may designate from time to time.
 
(i)           Notwithstanding any provision of this Section, if any provision of this Section is determined to be unenforceable or invalid under any applicable law, such provision will be applied to the maximum extent permitted by applicable law, and shall automatically be deemed amended in a manner consistent with its objectives to the extent necessary to conform to any limitations required under applicable law.  Furthermore, if any provision of this Section is illegal under any applicable law, such provision shall be null and void to the extent necessary to comply with applicable law.
 
Notwithstanding the foregoing, but subject to any contrary terms set forth in any Award Agreement, this Section shall not be applicable: (i) to any Participant who is not, on the Award Date, an Employee of the Company or its Affiliates; and (ii) to any Participant from and after his or her termination of Continuous Service after a Change in Control.
 
 
 
 
 
 
 
 
 
 
20
 
 
 


 
 


 
 
 
 
 
 
EXHIBIT 10.2
 
INDUSTRIAL DEVELOPMENT REVENUE BONDS,
BOND AGREEMENT DATED FEBRUARY 28, 2007

 
 
 

 


$4,000,000
City of Wisconsin Rapids, Wisconsin
Industrial Development Revenue Bonds, Series 2007A, 2007B and 2007C
(Advanced Fiberglass Technologies Project)
 

 

 
 
BOND AGREEMENT
 

 

 
By and Among

CITY OF WISCONSIN RAPIDS, WISCONSIN,
as Issuer,


M & W FIBERGLASS, LLC,
ADVANCED FIBERGLASS TECHNOLOGIES, INC.,
and
JAMIE L. MANCL and JENNIFER MANCL,
as Borrowers


NEKOOSA PORT EDWARDS STATE BANK,
as Trustee

and

NEKOOSA PORT EDWARDS STATE BANK,
as Original Purchaser



Dated February 28, 2007


 
 

 

$4,000,000
City of Wisconsin Rapids, Wisconsin
Industrial Development Revenue Bonds, Series 2007A, 2007B and 2007C
(Advanced Fiberglass Technologies Project)
 
 
BOND AGREEMENT
 
 
TABLE OF CONTENTS
 
ARTICLE I DEFINITIONS
 
 
Section 1.01
Definitions
 
 
Section 1.02
Use of Phrases; Rules of Construction
12
   
ARTICLE II ISSUANCE AND TERMS OF BONDS
   13
 
Section 2.01
Creation of Bonds for Issuance
13
 
Section 2.02
Maturity; Repayment of Principal; Interest Payments
13
 
Section 2.03
Interest on the Bonds.
14
 
Section 2.04
Occurrence of a Determination of Taxability
15
 
Section 2.05
Mandatory and Optional Redemption of Bonds
16
 
Section 2.06
Optional Redemption of Bonds Upon Occurrence of Certain Extraordinary Events
18
 
Section 2.07
Purchase and Cancellation of Bonds
20
 
Section 2.08
Notice and Effect of Redemption
20
 
Section 2.09
Bonds to be Limited Obligations of the Issuer
20
 
Section 2.10
Source of Payment
21
 
Section 2.11
Pledged Revenues
21
 
Section 2.12
Form of Bonds
21
 
Section 2.13
Execution of Bonds
21
 
Section 2.14
Authentication
22
 
Section 2.15
Provision for Registration, Transfer and Exchange of Bonds
22
 
Section 2.16
Persons Treated as Bondowners
23
 
Section 2.17
Manner of Payment of Bonds
23
 
Section 2.18
Mutilated, Lost, Stolen or Destroyed Bonds
23
 
Section 2.19
Trustee Designated as Bond Registrar
23
 
Section 2.20
Disposition of Bonds Upon Payment; Safekeeping of Bonds Surrendered for Exchange
23
 
Section 2.21
Delivery of Bonds
24
 
Section 2.22
Parity
24
 
Section 2.23
Discharge
24
   
ARTICLE III FUNDS AND ACCOUNTS
26
 
Section 3.01
Application of Proceeds of Bonds
26
 
Section 3.02
Project Fund
26
 
Section 3.03
Bond Fund
27
 
Section 3.04
Redemption Fund
27
 
 
 
i

 
 
Section 3.05
Insurance and Condemnation Proceeds Fund
28
 
Section 3.06
Rebate Credit Account; Arbitrage
29
 
Section 3.07
Trust Funds Held in Trust
30
 
Section 3.08
Permitted Investment of Trust Funds
30
   
ARTICLE IV TERMS OF LOANS
30
 
Section 4.01
Amount and Source of Loans
30
 
Section 4.02
Withdrawals from the Project Fund
31
 
Section 4.03
Establishment of Completion Date
32
 
Section 4.04
Completion Date
32
 
Section 4.05
Distribution of Project Fund on Completion Date
32
 
Section 4.06
Repayment of Loan
32
 
Section 4.07
Additional Payments
32
 
Section 4.08
Borrowers’ Obligations Unconditional
33
 
Section 4.09
Credit for Accrued Interest and Investment Earnings on Bond Fund
33
 
Section 4.10
Prepayment of Loan
33
 
Section 4.11
Other Security
33
 
Section 4.12
Nature of Borrowers’ Obligations
33
 
Section 4.13
Fees and Expenses of Issuer
34
   
ARTICLE V ISSUER’S REPRESENTATIONS AND COVENANTS
34
 
Section 5.01
Payment of Principal and Interest
34
 
Section 5.02
Performance of and Authority for Covenants
34
 
Section 5.03
Right to Payments; Instruments of Further Assurance
34
 
Section 5.04
Title to Project
34
 
Section 5.05
Cooperation of the Issuer and Trustee
35
 
Section 5.06
Performance by Issuer
35
   
ARTICLE VI BORROWERS’ REPRESENTATIONS AND COVENANTS
35
 
Section 6.01
Representations by the Borrowers Individually
35
 
Section 6.02
Representations by the Borrowers Collectively
37
 
Section 6.03
Completion of Project by the Borrowers
38
 
Section 6.04
Payment of Project Costs by the Borrower
38
 
Section 6.05
Sums for Completion
38
 
Section 6.06
Borrowers to Repair, Replace, Rebuild or Restore
39
 
Section 6.07
Maintenance of Property; Insurance
40
 
Section 6.08
Compliance with Zoning Laws
40
 
Section 6.09
Indemnification
40
 
Section 6.10
Assurance of Tax-exemption
41
 
Section 6.11
Legal Existence; Compliance with Laws; Maintenance of Business; Taxes
41
 
Section 6.12
Financial Statements
41
 
Section 6.13
Environmental Compliance
42
 
Section 6.14
Certain Financial Covenants.
43
 
Section 6.15
Operating Funds and Accounts.
43
 
Section 6.16
Inspection of Property and Records
43
 
Section 6.17
Comply With, Pay and Discharge All Notes, Mortgages, Deeds of Trust and Leases
44
 
Section 6.18
Appraisals
44
 
 
ii

 
 
Section 6.19
Negative Covenants
44
 
Section 6.20
Consent to Participation
46
   
ARTICLE VII POWERS AND DUTIES OF TRUSTEE
46
 
Section 7.01
Acceptance of Trusts
46
 
Section 7.02
Specific Duty of Trustee to File Continuation Statements
48
 
Section 7.03
Notice to Bondowners if an Event of Default Occurs
48
 
Section 7.04
Intervention by Trustee
48
 
Section 7.05
Successor Trustee
49
 
Section 7.06
Resignation by Trustee
49
 
Section 7.07
Removal of Trustee
49
 
Section 7.08
Appointment of Successor Trustee by Bondowners; Temporary Trustee
49
 
Section 7.09
Concerning Any Successor Trustee
50
 
Section 7.10
Acquisition of Conflicting Interests by Trustee
50
 
Section 7.11
Requirement of a Corporate Trustee
51
 
Section 7.12
Trustee’s Fees
51
   
ARTICLE VIII BOND DEFAULTS AND REMEDIES
51
 
Section 8.01
Bond Defaults Defined
51
 
Section 8.02
Acceleration
52
 
Section 8.03
Remedies
52
 
Section 8.04
Right of Bondowners to Direct Proceedings
53
 
Section 8.05
Waiver of Certain Rights
53
 
Section 8.06
Application of Moneys
53
 
Section 8.07
Remedies Vested in Trustee
54
 
Section 8.08
Rights and Remedies of Bondowners
54
 
Section 8.09
Termination of Proceedings
55
 
Section 8.10
Waivers of Bond Defaults
55
   
ARTICLE IX LOAN DEFAULTS AND REMEDIES
56
 
Section 9.01
Loan Defaults Defined
56
 
Section 9.02
Certain Notices to Borrower
56
 
Section 9.03
Acceleration Upon Certain Circumstances
57
 
Section 9.04
Remedies
57
 
Section 9.05
Disposition of Funds
57
 
Section 9.06
Manner of Exercise
57
 
Section 9.07
Attorneys’ Fees and Expenses
57
 
Section 9.08
Effect of Waiver
58
 
Section 9.09
Waiver of Stay or Extension Laws
58
   
ARTICLE X AMENDMENTS
58
 
Section 10.01
Amendments Without Bondowners’ Consent
58
 
Section 10.02
Amendments With Bondowners’ Consent
58
 
Section 10.03
Consent of Borrower
59
 
Section 10.04
Special Provisions Regarding Certain Amendments
59
   
ARTICLE XI ASSIGNMENT
59
 
 
iii

 
ARTICLE XII GENERAL
60
 
Section 12.01
Notices
60
 
Section 12.02
Consent of Bondowners
61
 
Section 12.03
Limitation of Rights
61
 
Section 12.04
Captions
61
 
Section 12.05
Execution Counterparts
61
 
Section 12.06
Severability
61
 
Section 12.07
Binding Effect
61
 
Section 12.08
Governing Law
61
   
ARTICLE XIII AGREEMENT TO PURCHASE BONDS AND FUND Borrowers’ REQUISITIONS
61
 
Section 13.01
Pledges.
62
 
Section 13.02
Certain Related Documents
62
 
Section 13.03
Bond Documents
62
 
Section 13.04
Closing Certificate
62
 
Section 13.05
UCC Searches
62
 
Section 13.06
Insurance Certificates
62
 
Section 13.07
Title Insurance
62
 
Section 13.08
Survey
62
 
Section 13.09
Environmental Reports
63
 
Section 13.10
Counsel Opinion
63
 
Section 13.11
Real Estate Appraisals
63
 
Section 13.12
Proceedings Satisfactory
63
  Section 13.13 Project Compliance
  63
  Section 13.14 Supporting Documents     63 

 
iv

 

$4,000,000
City of Wisconsin Rapids, Wisconsin
Industrial Development Revenue Bonds, Series 2006
(Advanced Fiberglass Technologies Project)
 
 
BOND AGREEMENT
 

 
THIS BOND AGREEMENT (“ Bond Agreement ”), dated February 28, 2007, is by and among:
 
(i)           the CITY OF WISCONSIN RAPIDS, WISCONSIN (the “ Issuer ”);
 
(ii)           M & W FIBERGLASS, LLC , a Wisconsin limited liability company (“ M & W ”);
 
(iii)          ADVANCED FIBERGLASS TECHNOLOGIES, INC. , a Wisconsin   corporation (“ Advanced ”);
 
(iv)           JAMIE L. MANCL , an individual and JENNIFER MANCL , an individual, as husband and wife (the “ Mancls ” and, together with M & W and Advanced, sometimes collectively referred to herein collectively as the “ Borrowers ” and individually as a “ Borrower ”);
 
(v)            NEKOOSA PORT EDWARDS STATE BANK , a a Wisconsin banking corporation, as original purchaser of the Bonds issued hereunder (the “ Original Purchaser ”);
 
(vi)           NEKOOSA PORT EDWARDS STATE BANK , a Wisconsin banking corporation, as trustee (the “ Trustee ”).
 
The Issuer desires to issue the Bonds (hereinafter defined) and to lend the proceeds thereof to the Borrowers, and the Borrowers wish to borrow such proceeds from the Issuer, for the purpose of financing the Project (hereinafter defined).
 
Pursuant to its authorizing Resolution (hereinafter defined), the Issuer has authorized the Bonds to be issued in the aggregate principal amount not to exceed $4,000,000 and has provided that the Bonds will be issued as tax-exempt bonds of the Issuer.
 
In consideration of the premises, the promises of the Issuer and the Borrowers set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and to secure the payment of the principal of, premium, if any, and interest on all Bonds issued and outstanding under this Bond Agreement, the parties agree as follows:
 
 
1

ARTICLE   I
 
 
DEFINITIONS
 
Section 1.01   Definitions .  Capitalized terms herein shall have the respective meanings set forth below:
 
Advanced :    Advanced Fiberglass Technologies, Inc., a Wisconsin corporation.
 
Advanced Organizational Documents :  The Articles of Incorporation and By-Laws of Advanced.
 
Affiliate :  Any (a) director, officer or employee of the Person, or (b) Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, another Person.  A Person shall be deemed to control another Person if the controlling Person directly or indirectly, either individually or together with (in the case of an individual) his spouse, lineal descendants and ascendant and brothers or sisters by blood or adoption or spouses of such descendants, ascendant, brothers and sisters, owns five percent or more of any class of voting securities of the controlled Person or possesses, directly or indirectly, the power to direct, or cause the direction of, the management or policies of the controlled Person, whether through the ownership of voting securities, through common directors, trustees or officers, by contract or otherwise.
 
Authorized Representative of the Borrowers :  Unless and until otherwise designated by any Borrower by written notice to all of the Parties, Jamie L. Mancl, acting in his capacity as President of Advanced and Manager of M & W and as an individual, authorized to bind each Borrower and all of the Borrowers to contracts, to execute and deliver Borrowers’ Requisitions and to give Trust Fund investment directions hereunder on behalf of the Borrowers.
 
Bankruptcy Condition :  The (i) filing of a petition in bankruptcy by or against any Borrower or the Issuer as debtor under the United States Bankruptcy Code, 11 U.S.C. § 101 et seq., or (ii) continuance of other judicial proceedings with respect to any Borrower or the Issuer as debtor under similar or successor federal or state bankruptcy, reorganization or insolvency laws.
 
Bond Amount :  $4,000,000.
 
Bond Counsel :  A law firm whose legal and tax opinion on municipal bond issues is nationally recognized, initially, Whyte Hirschboeck Dudek S.C.
 
Bond Fund :  The Trust Fund described in Section 3.03
 
Bond Proceeds :  The proceeds of the sale of the Bonds, namely, such amount not to exceed $4,000,000, as may be advanced hereunder by the Original Purchaser.
 
Bond Register :  The registration books maintained by the Trustee pursuant to Section 2.15.
 
Bondowners :  At the time or times of determination, the Persons who are registered owners of Bonds as shown in the Bond Register maintained by the Trustee pursuant to Section 2.15.
 
 
2

 
Bonds :  The Issuer’s aggregate $4,000,000 Industrial Development Revenue Bonds, Series 2007A, 2007B and 2007C (Advanced Fiberglass Technologies Project), issued pursuant to this Bond Agreement.
 
Bond Year :  Each year ending on January 31.
 
Borrower :  Any of M & W, Advanced or the Mancls, individually.
 
Borrowers :  All of M & W, Advanced and the Mancls, collectively.   Whenever in this Bond Agreement the term Borrowers is used, it shall refer to the action (or inaction) or the right or obligation of all three of the Borrowers, collectively, except as the context otherwise clearly requires.
 
Borrowers’ Address :  The address which the Borrowers designate for the delivery of notices hereunder.  Until changed by notice from any Borrower to all Parties, the Borrower’s address shall be:
 
Prior to the Completion Date:
 
Mr. Jamie L. Mancl
c/o Advanced Fiberglass Technologies, Inc.
2330 S. 16 th Street
Wisconsin Rapids, Wisconsin 54494
Phone:    (715) 421-2060
Fax:         (715) 421-2048
 
After the Completion Date:
 
Mr. Jamie L. Mancl
c/o Advanced Fiberglass Technologies, Inc.
4400 Commerce Drive
Wisconsin Rapids, Wisconsin 54494
Phone:    (715) 421-2060
Fax:         (715) 421-2048
 
Borrower's Certificate :  A certificate signed on behalf of any Borrower by an Authorized Officer of the Borrowers.
 
Borrowers’ Requisition :  A withdrawal from the Project Fund pursuant to Section 4.02, in the form of Exhibit D attached hereto.
 
Business Day :  Any day other than a Saturday, Sunday or other day on which banks are required or authorized to remain closed in the city in which the Trustee’s Principal Office is located.
 
Clerk :  The Clerk of the Issuer.
 
Code :  The Internal Revenue Code of 1986, as amended.
 
 
3

 
Completion Date :  The completion date of the Project established in accordance with Section 4.03.
 
Counsel :  An attorney acceptable to the Trustee, duly admitted to practice law before the highest court of any state, who may be an attorney for any Borrower, the Original Purchaser, the Trustee or the Issuer.
 
Dated Date :  February 28, 2007.
 
Defeasance Obligations :  Any of the following which are not subject to prepayment in whole or in part or to redemption by the issuer thereof prior to maturity:
 
(a)         Government Obligations;
 
(b)         Evidences of ownership of proportionate interests in future interest and principal payments on Government Obligations held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor on the Government Obligations, and which underlying Government Obligations are not available to satisfy any claim of the custodian or any person claiming through the custodian or to whom the custodian may be obligated; and
 
(c)         Obligations described in Section 103(a) of the Code, which obligations have been assigned the highest rating assigned to legally defeased debt by Standard & Poor’s Ratings Services, a Division of The McGraw-Hill Companies, Inc., and Moody’s Investors Service and provision for the payment of the principal of, premium, if any, and interest on which shall have been made by the irrevocable deposit with a bank or trust company acting as a trustee or escrow agent for holders of such obligations of securities described in clauses (a) or (b), the maturing principal of and interest on which, when due and payable, will provide sufficient moneys to pay when due the principal of, premium, if any, and interest on such obligations, and which securities described in clauses (a) or (b) are not available to satisfy any other claim, including any claim of the trustee or escrow agent or of any person claiming through the trustee or escrow agent or proceedings arising out of such insolvency.
 
Determination of Taxability :  The issuance of a statutory notice of deficiency by the Internal Revenue Service, or a ruling of the National Office or any District Office of the Internal Revenue Service, or a final decision of a court of competent jurisdiction, or a regulation or revenue ruling issued by the Internal Revenue Service, after the period, if any, for contest or appeal by the taxpayer of such action, ruling or decision has expired without any such contest or appeal having been properly instituted by the taxpayer, or delivery to the Issuer by Bond Counsel of an opinion, which holds or declares in effect that the interest payable on any of the Bonds is includable for federal income tax purposes in the gross income of the Bondowners of such Bonds (other than a Bondowner who is a substantial user of the Project or a related person, as such terms are defined in the Code).
 
Employee Plan :  Any savings, profit sharing, or retirement plan or any deferred compensation contract or other plan maintained for employees of any Borrower or its Subsidiaries and covered by Title IV of ERISA, including, without limitation, any “multiemployer plan” as defined in ERISA.
 
 
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Environmental Law :  Any local, state or federal law or other statute, law, ordinance, rule, code, regulation, decree or order governing, regulating or imposing liability or standards of conduct concerning the use, treatment, generation, storage, disposal or other handling or release of any Hazardous Substance.
 
Environmental Liability :  All liability arising under, resulting from or imposed by any Environmental Law.
 
ERISA :  The Employee Retirement Income Security Act of 1974, as amended, and any successor statute, together with the regulations and published interpretations thereunder, in each case as in effect from time to time.
 
Event of Default :  Any of the events described as such in Section 8.01 (a “ Bond Default ”) or in Section 9.01 (a “ Loan Default ”).
 
Event of Taxability :  The circumstance of interest paid or payable on any Bond becoming includable (other than for purposes of a tax on preferences of the type imposed by Section 56 of the Code or any successor statute thereto or any similar federal tax on preferences or similar items and other than by reason having to do with the tax status of, or rules applicable to, the particular individual Bondowner rather than the status of, or rules applicable to, all persons generally) for federal income tax purposes in the gross income of any Bondowner (other than a Bondowner who is a “substantial user” or a “related person” within the meaning and for the purposes of Section 147(a) of the Code) as a consequence of any act, omission or event whatsoever; provided , however , that a change in the Code enacted after the date of issuance of the Bonds which results in interest on borrowings by state and local governments generally being included in gross income shall not be an Event of Taxability.
 
GAAP :  Those generally accepted accounting principles and practices which are recognized as such by the American Institute of Certified Public Accountants acting through appropriate boards or committees thereof and which are consistently applied for all periods so as to properly reflect the financial condition, results of operations and cash flows of a Borrower and its Subsidiaries.
 
Government Authority :  Any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled through stock or capital ownership or otherwise, by any of the foregoing.
 
Government Obligations :  Securities which are direct full faith and credit obligations of the United States or securities as to which the payment of both principal and interest are unconditionally guaranteed by the United States of America.
 
Guarantor :  Fiberglass Piping and Fitting Company, a Wisconsin corporation.
 
Hazardous Substance :  Any pollutant, contaminant, waste or toxic or hazardous chemicals, wastes or substances, including, without limitation, asbestos, urea formaldehyde insulation, petroleum, PCB’s, air pollutants, water pollutants, and other substances defined as hazardous substances or toxic substances in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9061 et seq., Hazardous Materials Transportation Act, 49 U.S.C. § 1802, the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq., the Toxic
 
 
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Substance Control Act of 1976, as amended, 15 U.S.C. § 2601 et seq., the Solid Waste Disposal Act, 42 U.S.C. § 3251 et seq., the Clean Air Act, 42 U.S.C. § 1857 et seq., the Clean Water Act, 33 U.S.C. § 1251 et seq., Chapters 280-299 of the Wisconsin Statutes, or any other statute, rule, regulation or order of any Government Authority having jurisdiction over the control of such wastes or substances, including without limitation the United States Environmental Protection Agency, the United States Nuclear Regulatory Agency, the State of Wisconsin and the Milwaukee County Department of Health.
 
Highest Elected Official :  The Mayor of the Issuer.
 
Indebtedness :  All liabilities or obligations of a Person, whether or not included on the liability portion of a balance sheet, and shall include, without limitation, all (a) indebtedness for borrowed money; (b) indebtedness for the deferred purchase price of property or services for which the Persons is liable, contingently or otherwise, as obligor, guarantor or otherwise; (c) any commitment by which the Person assures a creditor against loss, including, without limitation, contingent reimbursement obligations with respect to letters of credit; (d) obligations which are evidenced by notes, acceptances or other instruments; (e) indebtedness guaranteed in any manner by the Person, including without limitation guaranties in the form of an agreement to repurchase or reimburse; (f) any unfunded obligation of the Person, to an Employee Plan; (g) all liabilities secured by any Lien on any Property owned by the Person, even though it has not assumed or otherwise become liable for the payment thereof; and (h) other liabilities or obligations of the Person and its Subsidiaries which would, in accordance with GAAP, be included on the liability portion of a balance sheet.
 
Insurance and Condemnation Proceeds Fund :  The Trust Fund described in Section 3.05.
 
Issuer :  City of Wisconsin Rapids, Wisconsin, its successors and assigns.
 
Issuer’s Address :  The address which the Issuer designates for the delivery of notices hereunder.  Until changed by notice from the Issuer to all Parties, the Issuer’s Address shall be:
 
City of Wisconsin Rapids
444 West Grand Avenue
Wisconsin Rapids, WI 54495
Attn: City Clerk
Phone:  (715) 421-8208
Fax:       (715) 421-8280

Lien :  Any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), deed of trust, charge, preference, priority, security interest or other security agreement or preferential arrangement of any kind or nature whatsoever including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code of the State of Wisconsin or comparable law of any jurisdiction.

Loan :  The Loan of the Bond Proceeds by the Issuer to the Borrowers.
 
 
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Loan Documents :  The documents relating to the Bonds and the Loan, including the Resolution, this Bond Agreement, the Security Documents, the Promissory Note, and other documents executed and delivered at the Closing.
 
Loan Repayments :  The payments required to be made by the Borrowers pursuant to Section 4.06.
 
M & W :  M & W Fiberglass, LLC, a Wisconsin limited liability company.
 
M & W Organizational Documents :  The Articles of Organization and Operating Agreement of M & W.
 
Mancls :  Jamie L. Mancl, an individual, and Jennifer Mancl, an individual, as husband and wife.
 
Material Adverse Effect :  (a) an Event of Default, (b) a material adverse change in the business, prospects or condition (financial or otherwise) of a Borrower or any of its respective Subsidiaries or in any Property, (c) the termination of any material agreement to which a Borrower is a party, (d) any material impairment of the right to carry on the business as now or proposed to be conducted by a Borrower, or (e) any material impairment of the ability of a Borrower to perform its obligations under this Bond Agreement or the Security Documents.
 
Net Proceeds :  The gross proceeds of an insurance claim or condemnation award with respect to the Project after payment of all expenses (including attorneys’ fees and any extraordinary fee or expense of the Trustee) incurred in its collection.
 
No Arbitrage Certificate :  That certain No Arbitrage Certificate dated February 28, 2007made by the Issuer and acknowledged, with respect to accuracy and reasonableness of certain expectations, facts and estimates contained therein, by the Borrower.
 
Obligations :  The Promissory Note, all mandatory prepayments, all costs and expenses and all other Indebtedness of the Borrowers to the Original Purchaser, including, without limitation, all Obligations as defined in the Credit Agreement.
 
Of Record : When used in reference to any Bondowner, the Person whose name appears in the registration books maintained by the Trustee pursuant to Section 2.15 as the owner of a Bond.
 
Opinion of Counsel :  A written opinion of Counsel or Bond Counsel.
 
Original Issue Date :  February 28, 2007.
 
Original Purchaser :  Nekoosa Port Edwards State Bank, a Wisconsin banking corporation, Nekoosa, Wisconsin.
 
Original Purchaser’s Address :  The address which the Original Purchaser designates for the delivery of notices hereunder.  Until changed by notice from the Original Purchaser to the Borrower, the Issuer and the Trustee, the Original Purchaser’s Address is:
 
 
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Nekoosa Port Edwards State Bank
405 Market Street
P.O. Box 9
Nekoosa, WI 54457
Phone:   (715) 886-3104
Fax:        (715) 886-3310
 
 
Outstanding Bonds and Outstanding (when used with reference to Bonds):  All Bonds which have been authenticated and delivered by the Trustee hereunder, except:
 
(a)           Bonds or portions thereof cancelled by the Trustee or delivered to the Trustee for cancellation; and
 
(b)           Bonds in lieu of which other Bonds have been authenticated and delivered in accordance with Sections Section 2.13, Section 2.14 and Section 2.21.
 
Participant :  Bankers’ Bank, Madison, Wisconsin.
 
Paying Agent :  Any bank or banks designated pursuant to this Bond Agreement as the agent of the Issuer to receive and disburse the principal of and interest on the Bonds; initially, the Trustee.
 
Payment Date :  Monthly on the 28th day of each month, commencing on March 28, 2007.
 
Prime Rate : the Prime Rate of Interest as published in the “Money Rates” section of the most recent Midwest Edition of The Wall Street Journal , provided that if at any time the Prime Rate of Interest is no longer so published in the Midwest Edition of The Wall Street Journal published as of the business day immediately preceding any adjustment in the interest rate on the Bonds to the Prime Rate, then “Prime Rate” shall mean the interest rate announced as its Prime Rate of Interest by the largest commercial bank headquartered in the State of Wisconsin on such date.
 
PBGC :  The Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA.
 
Person :  An individual, partnership, corporation, limited liability company, enterprise, association, business trust, joint stock company, joint venture, trust, unincorporated organization, governmental authority or any agency or political subdivision thereof, or other entity of whatever nature.
 
Pledged Revenues :  All revenues and income derived by or for the account of the Issuer from or for the account of the Borrowers pursuant to the terms hereof, including, without limitation (i) all payments by the Borrowers on the Loan or pursuant to Section 4.07, (ii) all cash and securities held from time to time in the Trust Funds (with the exception of the Rebate Credit Account) and the investment earnings thereon, and (iii) all proceeds of any casualty insurance or condemnation awards payable with respect to the Project.
 
Project :  The project described in Exhibit A attached hereto.
 
 
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Project Costs :
 
(a)           All legal, abstracting, surveying, financial and accounting and other fees and expenses, printing and engraving costs and expenses incurred in connection with the establishment of title, the authorization, sale and issuance of the Bonds (including any underwriter’s or agent’s fees, commitment or origination fees, or points in connection with the issuing of the Bonds but, to the extent paid from Bond proceeds, not to exceed two percent of the face amount of the Bonds), and the preparation of this Bond Agreement and all other documents, including filing fees for any financing statements deemed necessary by Counsel;
 
(b)           All costs of improving the Project Site;
 
(c)           All costs of acquiring and installing the Project Equipment;
 
(d)           All architectural, engineering, consulting, legal, supervisory and other services incurred and to be incurred in the construction, purchase, acquiring, installing, improving, equipping or furnishing of the Project;
 
(e)           The contract price of all labor, services, materials, supplies and equipment furnished under any contract entered into in connection with the construction, purchase, acquisition, installing, improving, equipping or furnishing of the Project;
 
(f)           The cost of all other labor, services, materials, supplies and equipment necessary to complete the Project;
 
(g)           All fees and expenses of the Trustee that become due before the Completion Date;
 
(h)           To the extent permitted by the Statute and not prohibited by rules or regulations of the Internal Revenue Service and not otherwise paid from Bond proceeds deposited in the Bond Fund, all interest accruing up until and not later than the completion of the Project, on money borrowed by a Borrower for temporary financing of Project Costs if such money was borrowed by a Borrower for the specific purpose of temporarily financing Project Costs and was not part of a general purpose open line of credit, and interest accruing on the Bonds prior to, and up to completion of the Project;
 
(i)           Without limitation by the foregoing, all other expenses which under GAAP constitute necessary capital expenditures for the completion of the construction, acquisition, purchase, installation, improving, equipping or furnishing of the Project, not including initial working capital or expendable supplies (all of which are nevertheless to be supplied by a Borrower or the Borrowers from its own funds without reimbursement);
 
(j)           All advances, payments and expenditures made or to be made by the Issuer, the Trustee or any other person with respect to any of the foregoing expenses; and
 
(k)           Reimbursement of the Borrowers for its payment of any of the foregoing incurred after June 20, 2006.
 
Project Equipment :  The equipment to be installed by a Borrower at the Project Site as part of the Project, and listed on Exhibit A attached hereto.
 
 
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Project Fund :  The Trust Fund described in Section 3.02.
 
Project Site :  The location of the Project and the Project Equipment, namely, 4400 Commerce Drive, in the City of Wisconsin Rapids, Wood County, Wisconsin.
 
Promissory Note :  The Promissory Notes to the Issuer from the Borrowers, dated the Original Issue Date, in the original principal amounts of $3,000,000 (the “ Series A Note ”), $500,000 (the “ Series B Note ”) and $500,000 (the “ Series C Note ”).
 
Property :  Any interest of the Borrowers or any of their respective Subsidiaries of any kind in property or assets, whether real, personal, mixed, tangible or intangible, wherever located, and whether now owned or subsequently acquired or arising and in the products, proceeds, additions and accessions thereof or thereto.
 
Qualified Investments :  Includes any of the following securities, in and to the extent that the Trustee has not been notified that the same have not been disqualified as legal for the investment of the Issuer’s moneys:  Government Obligations and (a) the obligations, including discount notes, of (i) Federal National Mortgage Association, (ii) Federal Intermediate Credit Banks, (iii) Federal Banks for Cooperatives, (iv) Federal Land Banks, (v) Federal Home Loan Banks, (vi) Federal Financing Bank, (vii) Federal Farm Credit System, (viii) Federal Home Loan Mortgage Corporation, (ix) Government National Mortgage Association, (x) Federal Housing Administration, and (xi) Farmers Home Administration; provided , however , that obligations listed in this subpart (a) shall be guaranteed by the United States of America; (b) unsecured certificates of deposit, demand deposits, including interest bearing money market accounts, trust deposits, time deposits or bankers acceptances (in each case having maturities of not more than 360 days) of any domestic bank (including the Original Purchaser and the Trustee and any bank affiliated with the Trustee) including a branch office of a foreign bank, which branch office is located in the United States, provided that such bank at the time of purchase, has a short-term “Bank Deposit” rating of “Prime-1” or better by Moody’s Investors Service and a rating of “A-1” or better by Standard & Poor’s Ratings Services; (c) certificates of deposit or time deposits fully collateralized by Government Obligations; (d) any repurchase agreement by the Trustee that is with a bank or institution, which bank, institution or holding company thereof is rated “BAA1” or better by Moody’s Investors Service or “B+” or better by Standard & Poor’s Ratings Services, provided that such repurchase agreement may not extend more than 30 days beyond its issuance and such repurchase obligation will be for Government Obligations; and notwithstanding any of the foregoing, to the extent that any obligations described in this definition are repurchase agreements then (i) the Trustee must have perfected a first security interest in such obligations, (ii) the Trustee or a third party acting solely as agent for the Trustee must have possession of such obligations, (iii) such obligations must be free and clear of third party claims, and (iv) any investment in a repurchase agreement will be considered to mature on the date the bank or trust company providing the repurchase agreement is obligated to repurchase the Government Obligations; (e) commercial paper or finance company paper rated not less than A 1 or prime-one or their equivalents by Standard & Poor’s Ratings Services and Moody’s Investors Service; (f) state and local government obligations, the interest on which is excludable from the gross income of the holder thereof for federal income tax purposes pursuant to Section 103(a) of the Code, provided that such obligations have a rating of “A “ or better from Standard & Poor’s Ratings Services or Moody’s Investors Service; (g) the “Tax-Exempt Money Market Fund” for which the Trustee acts as investment advisor; (h) the “Short Term Investment Fund” of the Trustee; and (i) so long as the Original Purchaser is the Bondowner of all of the Bonds Outstanding,
 
 
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investment agreements or certificates of deposit as may be approved by the Borrowers and the Original Purchaser; provided , however , that such investment ratings shall apply only at the time of acquisition of such investment.
 
Rebate Credit Account :  The account described in Section 3.06, which account shall not be pledged for the benefit of the Bondowners hereunder.
 
Record Date :  For the interest payable on any Payment Date means the day (whether or not a Business Day) next preceding such Payment Date.
 
Redemption Date :  The date upon which any Bond is to be redeemed prior to maturity.
 
Redemption Fund :  The Trust Fund described in Section 3.04.
 
Registered Bondowner :  The person in whose name a Bond is registered in the Bond Register.
 
Requirements of Law :  As to any matter or Person, the Certificate or Articles of Incorporation or Organization and Bylaws or Operating Agreement or other organizational or governing documents of such Person, and any law (including, without limitation, any Environmental Law), ordinance, treaty, rule, regulation, order, decree, determination or other requirement having the force of law relating to such matter or Person and, where applicable, any interpretation thereof by any Government Authority.
 
Requisite Consent :  Unless all Bonds are then owned by the Borrower, the affirmative written consent of Bondowners registered as the Bondowners in aggregate not less than a majority in principal amount of the Bonds (other than Bonds owned by the Borrowers or any “related person” as defined in Section 147 of the Code) at the time Outstanding.
 
Security Documents :  the Construction Mortgage and Assignment of Leases and Rents, the Pledge and Security Agreement, the Security Agreement, [the Collateral Assignment of Architect’s Contract], and the Collateral Assignment of Construction Contracts, all by the Borrowers in favor of the Trustee and the Original Purchaser.
 
Series A Bonds :  The Issuer’s $3,000,000 principal amount Industrial Development Revenue Bonds, Series 2007A (Advanced Fiberglass Technologies Project), authorized by and issued pursuant to Section 2.01(a)(i)of this Bond Agreement.
 
Series B Bonds :  The Issuer’s $500,000 principal amount Industrial Development Revenue Bonds, Series 2007B (Advanced Fiberglass Technologies Project), authorized by and issued pursuant to Section 2.01(a)(ii) of this Bond Agreement.
 
Series C Bonds :  The Issuer’s $500,000 principal amount Industrial Development Revenue Bonds, Series 2007C (Advanced Fiberglass Technologies Project), authorized by and issued pursuant to Section 2.01(a)(iii) of this Bond Agreement.
 
Statute :  Section 66.1103 of the Wisconsin Statutes, as amended from time to time.
 
 
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Subsidiary :  As to any Person, a corporation or limited liability company of which shares of stock or membership interest having voting power (other than stock or membership interest having such power only by reason of the happening of a contingency that has not occurred) sufficient to elect a majority of the board of directors or other managers of such corporation or limited liability company are at the time owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person.
 
Tax Certificate :  The Borrower’s certification, executed and delivered on and as of the Closing Date, certifying to certain facts and circumstances upon which Bond Counsel will rely in part in issuing its Opinion of Counsel as to the tax-exempt status of interest on the Bonds, subject to the assumptions, qualifications and limitations set forth in such Opinion of Counsel.
 
Trustee :  Initially, Nekoosa Port Edwards State Bank, Nekoosa, Wisconsin, and any successor banking corporation, banking association or trust company at the time serving as corporate trustee hereunder.
 
Trustee’s Address and Trustee’s Principal Office :  The address or office which the Trustee designates for the delivery of notices or payments hereunder.  Until changed by notice from the Trustee to the Borrower, the Issuer and the Original Purchaser, the Trustee’s Address and Principal Office is:
 
Nekoosa Port Edwards State Bank
405 Market Street
P.O. Box 9
Nekoosa, WI 54457
Phone:       (715) 886-3104
Fax:            (715) 886-3310

Trust Funds :  The trust funds and accounts administered by the Trustee hereunder.
 
Unassigned Rights :  The Borrower’s obligations to the Issuer under Section 4.13, Section 6.09 and Section 9.07.
 
Section 1.02   Use of Phrases; Rules of Construction .  The following provisions shall be applied wherever appropriate herein:
 
Herein ,” “ hereby ,” “ hereunder ,” “ hereof ” and other equivalent words refer to this Bond Agreement as an entirety and not solely to the particular portion hereof in which any such word is used.
 
The definitions set forth in Section 1.01 shall be deemed applicable whether the words defined are herein used in the singular or the plural.
 
Wherever used herein, any pronoun or pronouns shall be deemed to include both the singular and plural and to cover all genders.
 
Unless otherwise provided, any determinations or reports hereunder which require the application of accounting concepts or principles shall be made in accordance with GAAP.
 
 
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ARTICLE   II
 
ISSUANCE AND TERMS OF BONDS
 
Section 2.01   Creation of Bonds for Issuance .  There is hereby created for issuance an issue of Bonds to be designated:
 
CITY OF WISCONSIN RAPIDS, WISCONSIN
INDUSTRIAL DEVELOPMENT REVENUE BONDS, SERIES 2007A, 2007B and 2007C
(ADVANCED FIBERGLASS TECHNOLOGIES PROJECT)
 
The Bonds shall be issued in the aggregate principal amount not to exceed FOUR MILLION AND 00/100 DOLLARS ($4,000,000.00).
 
(a)      The Issuer has, pursuant to the Bond Resolution, further divided the Bonds into three series, designated as “Series 2007A,” “Series 2007B” and “Series 2007C” as provided below.  The Bonds of each and all Series shall have parity with all Bonds of every other Series as provided in Section 2.22.
 
(i)      The Bonds designated as Series 2007A shall be issued in the maximum aggregate principal amount of THREE MILLION AND 00/100 DOLLARS ($3,000,000.00) and are referred to herein as the “ Series A Bonds .”
 
(ii)      The Bonds designated as Series 2007B shall be issued in the maximum aggregate principal amount of FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($500,000) and are referred to herein as the “ Series B Bonds .”
 
(iii)      The Bonds designated as Series 2007C shall be issued in the maximum aggregate principal amount of FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($500,000) and are referred to herein as the “ Series C Bonds .”
 
(b)      The Bonds of each series shall be numbered in such manner as the Trustee shall deem appropriate, provided that each particular Bond shall have a different identifying number.  The Bonds shall be issuable in the form of typewritten or printed, fully registered Bonds.  The Bonds shall specify the Original Issue Date as their original issue date, and each particular Bond shall be dated, as its registration date, the date of its authentication.
 
Section 2.02   Maturity; Repayment of Principal; Interest Payments   The Bonds shall mature as follows:
 
(i)      The Series A Bonds shall have a final maturity date (the “ Series A Maturity Date ”) of July 28, 2027.  On the Series A Maturity Date there shall be a full and final payment of all unpaid principal and accrued unpaid interest in respect of the Series A Bonds.
 
(ii)      The Series B Bonds shall have a final maturity date of July 28, 2014 (the “ Series B Maturity Date ”).  On the Series B Maturity Date there shall be a full and final payment of all unpaid principal and accrued unpaid interest in respect of the Series B Bonds.
 
 
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(iii)      The Series C Bonds shall have a final maturity date of July 28, 2014 (the “ Series C Maturity Date ”).  On the Series C Maturity Date there shall be a full and final payment of all unpaid principal and accrued unpaid interest in respect of the Series C Bonds.
 
(b)      Principal of the Bonds shall be repaid by the Issuer (from payments to be made by the Borrowers hereunder) in such amounts and on such dates as provided in Section 2.05.
 
(c)      Notwithstanding anything else herein to the contrary, the principal amount of any series of Bonds Outstanding shall never exceed the aggregate amounts transferred from the Original Purchaser to the Trustee for Deposit into the Project Fund pursuant to Section 3.01 less repayments of principal made by the Issuer, provided , however , that nothing herein shall be construed to obligate the Borrowers to proceed with the Project, and in the event Borrowers do not proceed with the Project, the Borrowers shall have no obligation hereunder, other than the repayment, together with interest, of amounts advanced by the Original Purchaser.
 
(d)      Payments of principal in excess of the scheduled installments set forth herein and related payments of premium, if any, shall be credited against scheduled installments in inverse order with respect to the Bonds (for this purpose, treating all Bonds as a single series).
 
Section 2.03   Interest on the Bonds .
 
(a)      Series A Bonds .
 
                (i)         Initial Interest Rate .  From the Original Issue Date through February 28, 2012, the Series A Bonds shall bear interest at a fixed rate of Five and 50/100 percent (5.50%) per annum.
 
                  (ii)      Interest Rate Resets .    The interest rate on the Series A Bonds shall be reset on each Reset Date to a fixed rate calculated as follows (i) the Prime Rate in effect on the Business Day next preceding the Reset Date minus (ii) 2.25 percentage points.  The Series A Bonds shall bear interest from each Reset Date through the day immediately prior to the next Reset Date at the rate determined according to the formula in the preceding sentence (in each case, the “ Reset Rate ”).  Notwithstanding the foregoing, the interest rate on the Series A Bonds shall never (i) exceed the Maximum Rate, nor (ii) be lower than the Minimum Rate.
 
(b)     Series B Bonds .  The Series B Bonds shall bear interest from the Original Issue Date through the Series B Maturity Date at a fixed rate of Five and 75/100 percent (5.75%) per annum.
 
(c)      Series C Bonds .  The Series C Bonds shall bear interest from the Original Issue Date through the Series C Maturity Date at a fixed rate of Five and 75/100 percent (5.75%) per annum.
 
(d)      Definitions .  The following definitions are applicable to this Section 2.03:
 
(i)      Marginal Bank Tax Rate :  The tax rate at which a commercial bank located in the United States and subject to federal income taxation as a corporation would be taxed for federal income tax purposes pursuant to the applicable provisions of the Code or any future
 
 
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United States internal revenue or similar laws applicable to such bank, if such bank’s taxable income were in the highest tax bracket specified by the Code.  As of the date of this Bond Agreement, the Marginal Bank Tax Rate is Thirty-Five and 00/100 percent (35.00%)
 
(ii)      Reset Date : Each of February 28, 2012; February 28, 2017; and February 28, 2022.
 
(iii)         Maximum Rate : Eighteen and 00/100 percent (18.00%) per annum.
 
(iv)     Minimum Rate :  Four and 00/100 percent (4.00%) per annum.
 
(v)      Default Rate :  The rate of interest per annum equal to the greater of (i) the Prime Rate or (ii) the sum of the then-applicable tax-exempt interest rate or rates applicable to each Series of Bonds as determined pursuant to Section 2.03, plus 3.0%, but in any event not greater than the Maximum Rate nor less than the Minimum Rate.
 
(e)      Tax-Exempt Yield Protection .  Notwithstanding the foregoing, the interest rate on the Bonds shall be subject to further adjustment on any Payment Date if on such Payment Date the Marginal Bank Tax Rate has changed to become either greater than or less than 35%.  The adjusted interest rate shall be determined by multiplying the then-applicable interest rate on the Bonds immediately prior to such change by a fraction: (i) the numerator of which is the difference between (A) 100% and (B) the applicable Marginal Bank Tax Rate immediately after such change and (ii) the denominator of which is the difference between (A) 100% and (B) the Marginal Bank Tax Rate in effect immediately prior to such change.
 
(f)      Interest Determinations Final .  All determinations of the interest rate hereunder shall be final and conclusive absent manifest error.
 
(g)      Computation of Interest .  Interest on the Bonds shall be computed on a 360 day year, actual days elapsed basis. Interest shall accrue only on principal amounts actually deposited and from the date such amounts are actually deposited into the Project Fund pursuant to Section 3.01 and Section 4.02 of this Bond Agreement.
 
(h)      Interest-Only Payments .  Interest shall be payable on each Payment Date, commencing on March 28, 2007 through and including July 28, 2007 (the “ Interest Only Period ”).  From and after August 28, 2007, interest shall be included in the monthly principal and interest payments payable as provided in Section 2.05(a).
 
(i)      Default Interest .  Overdue principal and interest on each Bond shall (to the extent legally enforceable) bear interest at the Default Rate.  Any interest on any Bond which is payable, but is not punctually paid or duly provided for, may be paid in any lawful manner, at the discretion of the Trustee.
 
Section 2.04   Occurrence of a Determination of Taxability .  The Bonds shall bear interest, payable on the first Payment Date after the occurrence of a Determination of Taxability with respect to all prior periods, computed at the rate set forth in the following paragraph, but not to exceed the Maximum Rate (the “ Taxable Rate ”) (on a 360-day year, actual days elapsed basis) on the outstanding principal amount of the Bonds (as reduced from time to time) from the date of the Event of Taxability, less any interest already paid, from the date of the Event of
 
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Taxability to such Payment Date.  Thereafter, the Bonds shall bear interest at the Taxable Rate (“ Taxable Interest ”) as provided in this Section on the Bonds Outstanding on each Payment Date.  Except for Taxable Interest allocable to the period between the Event of Taxability and the Payment Date immediately succeeding the Determination of Taxability, Taxable Interest payable under this Section shall be payable with respect to the same period, at the same time and in the same manner as interest payments regularly paid pursuant to this Bond Agreement.
 
Taxable Interest payable on the Bonds of all Series shall be equal to the higher of (i) the Prime Rate or (ii) the sum of the then-applicable tax-exempt interest rate or rates applicable to each Series of Bonds as determined pursuant to Section 2.03, plus 3.0% per annum.  The Borrowers shall also pay to the Bondowners (and any former Bondowners holding Bonds during any period subsequent to an Event of Taxability) as additional interest, the amount of penalties, additions to tax (exclusive of any taxes imposed under Section 11 or any successor provision of the Code) or interest assessed against the Bondowners (and former Bondowners) on account of a Determination of Taxability.  Taxable Interest to be paid pursuant to this Section for the period between the Event of Taxability and the Payment Date immediately succeeding the Determination of Taxability shall be paid immediately following the Determination of Taxability in the same manner as interest is paid to Bondowners in accordance with this Bond Agreement.
 
Any Bondowner shall have the right, but not the obligation, to arrange for the contest of an allegation that an Event of Taxability has occurred, by appropriate legal proceedings.  In the event no Bondowner shall contest the Event of Taxability, the Borrowers shall have the option but not the obligation to do so.  If (i) the Borrowers shall have made any additional payments to a Bondowner or former Bondowner by reason of an Event of Taxability pursuant to this Section, and (ii) it shall be successfully claimed for the taxable year in question that the interest on the Bonds for such taxable year is excluded from the Bondowner’s or former Bondowner’s taxable income for federal income tax purposes (for this purpose a claim shall be deemed successful only upon the occurrence of a “determination,” as defined in Section 1313(a) or any successor provision of the Code) or, if the Bondowner or former Bondowner shall not have included such interest in the Bondowner’s or former Bondowner’s taxable income for federal income tax purposes upon expiration of the statute of limitations provided by Section 6501 or any successor provision of the Code with respect to such taxable year, then the Bondowner or former Bondowner (as the case may be) shall pay to the Borrowers the amount of any such additional payments which had been made by the Borrowers to the Bondowner or former Bondowner, less any actual expenses incurred by such Bondowner or former Bondowner as a result of the alleged Event of Taxability.  Upon successful challenge of an Event of Taxability, the interest rate on the Bonds shall return to the interest rate ordinarily payable hereunder as if no Event of Taxability had ever been alleged.
 
Section 2.05   Mandatory and Optional Redemption of Bonds .  No Bond may be called for redemption prior to its stated maturity except as provided in this Section 2.05; provided , however , that nothing herein shall be deemed to limit the right of acceleration of Bond maturities upon the occurrence of a Bond Default.
 
(a)      Amortizing Redemptions .  Each Series of Bonds shall be subject to mandatory redemption in accordance with the redemption schedule set forth. On or prior to each “ Amortizing Redemption Date ” set forth below, the Borrowers shall provide to the Trustee immediately available funds sufficient to effect the redemption of the principal amount of Bonds
 
 
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required to be redeemed on such Amortizing Redemption Date as set forth below plus accrued interest to the Redemption Date.
 
(i)      Series A Bonds .  Following the Interest Only Period, beginning on August 28, 2007, and on the 28 th day of each calendar month through and including July 28, 2012, sixty (60) equal monthly principal and interest payments each in the amount of Twenty Thousand Seven Hundred Seventy-Six and 10/100 Dollars ($20,776.10).  On each Reset Date, the monthly principal and interest payments due hereunder shall be adjusted to level monthly principal and interest payments sufficient to amortize the then-current Principal Balance hereof over the remaining term to the Series A Maturity Date at the applicable Reset Rate (with the first such adjusted payment due on the March 28th following the Reset Date).
 
(ii)        Series B Bonds .  Following the Interest Only Period, beginning on August 28, 2007, and on the 28 th day of each calendar month through and including July 28, 2014, eighty-four (84) equal monthly principal and interest payments in the amount of Seven Thousand Two Hundred Sixty-Five and 78/100 Dollars ($7,265.78);
 
(iii)         Series C Bonds .  Following the Interest Only Period, beginning on August 28, 2007, and on the 28 th day of each calendar month through and including July 28  2014, eighty-four (84) equal monthly principal and interest payments in the amount of Seven Thousand Two Hundred Sixty-Five and 78/100 Dollars ($7,265.78).
 
(b)      Redemption at Original Purchaser's Option (Put Right) .  The Series A Bonds shall be subject to mandatory redemption, in whole, but not in part, on any Reset Date at the option of the Original Purchaser, so long as the Original Purchaser owns of Record all of the Outstanding Series A Bonds.  The Original Purchaser shall give prior written notice to all Parties of such mandatory redemption not less than ninety (90) days prior to any Reset Date.  In the case of a redemption pursuant to this Section 2.05(b), the redemption price shall be 100% of the principal amount of the Bonds so redeemed, plus all accrued interest to the Put Date.
 
(c)      Redemption at Borrower's Option (Call Right) .  Any Bond not redeemed pursuant to subsections (a) or (b), above, is subject to redemption in whole or in part at the option of the Borrowers on any Payment Date upon thirty (30) days prior written notice (" Call Notice ") to the Trustee and, so long as the Original Purchaser is the owner of any Outstanding Bonds, to the Original Purchaser.  Any such Call Notice shall specify the Payment Date and the principal amount of the Bonds to be redeemed on such Payment Date.  In the Call Notice, the Borrowers shall also identify the source of funds that it will use to pay the redemption price (including any premium) and shall certify that the circumstances described in subsection (d)(ii), below, do not exist.  In the event the Original Purchaser is not the holder of Record of all (100%) principal amount of the Bonds then outstanding, then the Call Notice shall be given to the Trustee not less than 60 days prior to the Payment Date on which the Borrowers propose to effect such redemption (in which case the Trustee shall comply with the requirements of Section 2.08 pertaining to notices of redemption).  In the case of a redemption pursuant to this Section 2.05(c), the redemption price shall be par plus accrued interest to the Redemption Date, plus the Redemption Premium, if any, calculated as determined under subsection (d), below. 
 
(d)      Premium Upon Certain Redemptions .  A premium (" Redemption Premium ") shall be due upon certain redemptions pursuant to subsection (c), above (but not in respect of
 
 
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redemptions pursuant to either subsection (a) or subsection (b)).   The Redemption Premium shall be payable in the following circumstances and shall be calculated as provided below:
 
(i)      In the case of an optional redemption under subsection (c), or one or more such redemptions, in any calendar year in a principal amount that exceeds Twenty and 00/100 percent (20.00%) of the principal amount of Bonds Outstanding on December 31 of the next preceding calendar year (the " Threshold "), there shall be due upon redemption a premium calculated as follows: (i) the principal amount being redeemed in excess of the Threshold, multiplied by (ii) Four and 00/100 percent (4.00%).
 
(ii)      In the case of an optional redemption in any amount where the source of funds to be used by the Borrowers is derived by the Borrowers from a loan, borrowing, extension of credit, credit facility, letter of credit or otherwise from a bank, financial institution or other institutional lender (other than the Original Purchaser or the Participant), or one or more of such borrowings or transactions, then there shall be due upon redemption a premium calculated as follows: (i) the principal amount being redeemed multiplied by (ii) four and 00/100 percent (4.00%).
 
(e)      Notwithstanding any provision of ARTICLE X or any other provision of the Bond Agreement to the contrary, the provisions of subsections (a) through (d) of this Section 2.05, including the redemption schedule set forth in Schedule 2.05, may, so long as the Original Purchaser is the Owner of Record of all (100%) in principal amount of the Bonds then Outstanding, be amended  or modified in any respect by a written instrument executed by the Borrowers, the Guarantor and the Original Purchaser, provided, that such amendment shall not be effective unless the Borrowers have obtained (at the Borrowers’ expense) a written Opinion of Bond Counsel to the effect that such amendment or modification shall not, in and of itself, cause an Event of Taxability to occur.  No prior notice to or consent of the Issuer or the Trustee shall be required to effect an amendment or modification pursuant to this Section 2.05(e); however , the Borrowers shall file with the Issuer and the Trustee the written instrument, signed by the Borrowers, the Guarantor and the Original Purchaser, together with the written opinion of Bond Counsel, within 30 days of the effective date of any such amendment or modification and upon such filing this Bond Agreement shall for all purposes be amended as of the date appearing on such instrument.  Notwithstanding the foregoing, the failure to make or a delay in making such filing shall not affect the validity of such amendment.  The Issuer and the Trustee agree to cooperate with any requirement of Bond Counsel necessary in the Opinion of Bond Counsel to render such Opinion, including without limitation rendering any certificate, executing any informational return on Form 8038 with the Service, or otherwise, provided that the Issuer or the Trustee shall in each case be indemnified for the costs and expenses of any such action as provided in Section 6.09.
 
Section 2.06   Optional Redemption of Bonds Upon Occurrence of Certain Extraordinary Events .  The Bonds shall be subject to redemption, in whole or in part, at par plus accrued interest to the Redemption Date at the option of the Borrower, or the Bondowners by Requisite Consent.  If the Project is affected as set forth below, each shall have an independent option to have the Loan repaid in whole out of Net Proceeds of an insurance or condemnation award relating to destruction or damage or condemnation of all or any part of the Project, and to direct the Issuer (i) to call for redemption and prepayment all the Outstanding Bonds if the Project, is set forth below, or (ii) to call for redemption and prepayment that amount of Outstanding Bonds attributable to debt incurred for the Project as determined by the Trustee if:
 
 
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(a)      The Project shall have been damaged or destroyed to such extent that, in the opinion of the Borrowers expressed in a Borrowers’ Certificate, or in the written opinion of an independent architect acceptable to the Trustee and, if the Original Purchaser then owns any of the Bonds, the Original Purchaser, filed with the Issuer and the Trustee following such damage or destruction (i) the completion of the Project will be delayed for at least six months, (ii) it is not practicable or desirable to rebuild, repair or restore the Project within a period of six consecutive months following such damage or destruction, or (iii) the Borrowers are or will be thereby prevented from carrying on its normal operations for a period of at least six consecutive months;
 
(b)      Title to or the temporary use of all or substantially all of the shall have been taken under the exercise of the power of eminent domain by any governmental Issuer to such extent that, in the opinion of the Borrowers expressed in a Borrowers’ Certificate, or in the written opinion of an independent architect acceptable to the Trustee and, if the Original Purchaser then owns any of the Bonds, the Original Purchaser filed with the Issuer and the Trustee (i) the completion of the Project will be delayed for at least six months, or (ii) the Borrowers are or will be thereby prevented from carrying on its normal operations at the Project site for a period of at least six consecutive months;
 
(c)      Any court or administrative body of competent jurisdiction shall enter a judgment, order or decree requiring the Borrowers to cease all or any substantial part of its operations at the Project site to such extent that, in the opinion of the Borrowers expressed in the Borrower’s Certificate, or in the written opinion of Counsel, who is also acceptable to the Original Purchaser if the Original Purchaser then owns any of the Bonds, filed with the Issuer and the Trustee, the Borrowers are or will be thereby prevented from carrying on its normal operations at the Project site for a period of at least six consecutive months;
 
(d)      As a result of any changes in the Constitution of Wisconsin or the Constitution of the United States of America or of legislative or administrative action (whether state or federal) or by final decree, judgment or order of any court or administrative body (whether state or federal), this Bond Agreement shall have become void or unenforceable or impossible of performance in accordance with the intent and purposes of the parties as expressed herein, or unreasonable burdens or excessive liabilities shall have been imposed on the Issuer or any Borrower including, without limitation, federal, state or other ad valorem, property, income or other taxes not being imposed on the date hereof; or
 
(e)      If it shall be discovered that any Borrower’s title to the Project shall be materially defective, and any Borrower’s title to the Project shall be lost by reason of such defect.
 
In any such case, the Borrowers or Bondowners shall, to exercise their respective option hereunder, give notice to the Issuer, the Trustee and the Bondowners or the Borrower, as the case may be, in writing of its or their intent to exercise this option and specifying the proposed Redemption Date, within thirty (30) days following discovery of the event by the party determining to exercise its option hereunder.  The exercise of either party of its option to redeem the Bonds shall be binding on all parties hereto.  Within sixty (60) days after the giving of notice as set forth above, the Borrowers shall deposit with the Trustee a sum sufficient, together with other funds held by the Trustee and available for such purpose (i) to redeem the Bonds, in whole or in part, as applicable at a redemption price equal to the principal amount thereof, (ii) to pay the interest which will become
 
 
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due on such Bonds to and including the Redemption Date, and (iii) to pay all expenses of the Issuer and the Trustee accrued and to accrue through the Redemption Date.
 
If any Borrower shall have received proceeds of an insurance or condemnation award relating to destruction or damage or condemnation of all or any part of the Project, and such net proceeds exceed the amount necessary to rebuild, repair or restore the applicable Facility, such Borrower agrees to direct the Issuer to call for redemption and prepayment Outstanding Bonds equal to the amount of such resulting excess net proceeds.
 
Section 2.07   Purchase and Cancellation of Bonds .  The Borrowers shall have the right to purchase any outstanding Bond and deliver it to the Trustee for cancellation.  Also, the Trustee may purchase any outstanding Bond for cancellation in accordance with this Bond Agreement.  Any such purchase and cancellation of a Bond shall ipso facto reduce the unpaid principal balance of the Loan on the date of such cancellation by an amount equal to the principal amount of such Bond.  Further, any such purchase shall be deemed to constitute a redemption of a like principal amount of Bonds and prior to and in connection with such purchase, the Borrowers shall comply with the requirements of Section 2.05(c) (including the payment of a redemption premium under Section 2.05(d), if applicable).  The reduction shall be applied to the principal installment on the Loan having the same maturity as the Bond so purchased and cancelled.  Nothing in this Section 2.07 shall require the owner of any Bond to sell such Bond to the Borrowers.
 
Section 2.08   Notice and Effect of Redemption .  Notice of the call for any redemption of Bonds prior to maturity shall be given by the Trustee by mailing a copy of the redemption notice by first-class mail not less than 30 nor more than 60 days prior to the Redemption Date to the Bondowner of each Bond to be redeemed at the address shown on the Bond Register; provided , however , that failure to give any such notice as aforesaid or any defect therein with respect to any particular Bond shall not affect the validity of any proceedings for the redemption of any other Bond.
 
Each redemption notice shall (i) identify the particular Bonds or portions thereof to be redeemed (including, at a minimum, certificate numbers and called amount for each certificate (for partial calls), Redemption Date, redemption agent name and address, date of issue, maturity date, and other descriptive information, if any, that accurately identifies the particular Bonds called for redemption), (ii) identify the provisions of this Bond Agreement pursuant to which the Bonds are being redeemed, (iii) identify the place of payment, (iv) state the applicable redemption price, including the premium, if any, and (v) state that interest on the Bonds or portions thereof thus called for redemption will cease to accrue from and after the Redemption Date specified therein.
 
If pursuant to this Bond Agreement the Trustee shall hold funds in the form of cash or Government Obligations which are available and will be sufficient in amount to pay the principal of and premium, if any, on the Bonds or portions thereof thus called for redemption and to pay the interest thereon to the Redemption Date, such Bonds or portions thereof shall cease to bear interest from and after the Redemption Date in question.
 
Section 2.09   Bonds to be Limited Obligations of the Issuer .  The Bonds shall be limited obligations of the Issuer payable by it solely from the Pledged Revenues.  The Bonds shall not constitute a debt or obligation of the Issuer, the county in which it is located, the State of Wisconsin or any political subdivision thereof within the meaning of any State of Wisconsin
 
 
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constitutional provision or statutory limitation and shall not be a charge against its or their respective general credit or taxing powers and shall not give rise to a pecuniary liability of the Issuer.  In making the agreements, provisions and covenants set forth in this Bond Agreement, the Issuer has not obligated itself, except to the extent that the Issuer is authorized to act pursuant to Wisconsin law and except with respect to the Pledged Revenues.  The Issuer and any of its officials, officers, employees, members or agent shall have no monetary liability arising out of the obligations of the Issuer hereunder or in any connection with any covenant, representation or warranty made by the Issuer herein and neither the Issuer nor its officials shall be obligated to pay any amounts in connection with the transactions contemplated hereby other than from Pledged Revenues or other monies received from the Borrower.
 
Section 2.10   Source of Payment .  The principal of, premium, if any, and interest on the Bonds shall be payable by the Issuer solely from the Pledged Revenues.
 
Section 2.11   Pledged Revenues .  The Pledged Revenues are hereby specifically, irrevocably and exclusively pledged by the Issuer to the Trustee to secure the punctual payment of the principal of, premium, if any, and interest on the Bonds, and shall be used for no other purpose except as otherwise expressly authorized herein.
 
Section 2.12   Form of Bonds .  The Bonds shall be issuable only as fully registered Bonds substantially in the form set forth in Exhibit B attached hereto, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Bond Agreement and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon, as may be required to comply with the rules of any securities exchange, or as may, consistently herewith, be determined by the officers executing such Bonds as evidenced by their execution of the Bonds.  There may be printed or otherwise reproduced on any Bond form (i) the legal opinion of Bond Counsel, (ii) customary “back panel” summary information, (iii) restrictions on transfer in form approved by the Trustee as required in particular instances, and (iv) any other information deemed necessary or appropriate by the Issuer or the Trustee with the approval of Bond Counsel to give notice of information to Bondowners.  Pending the preparation of definitive Bonds the Issuer may execute and the Trustee shall authenticate and deliver temporary Bonds, substantially of the tenor of the definitive Bonds in lieu of which they are issued, in fully registered form, with such appropriate insertions, omissions, substitutions and other variations as the Issuer’s Highest Elected Official and Clerk may determine, as evidenced by their manual signing of such Bonds.  If temporary Bonds are issued, the Trustee will cause definitive Bonds to be prepared without unreasonable delay.  After the preparation of definitive Bonds, the temporary Bonds shall be exchangeable for definitive Bonds upon surrender of the temporary Bonds at the Trustee’s Principal Office without charge to the Bondowner.  Upon surrender for cancellation of any one or more temporary Bonds, the Issuer shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Bonds of authorized denominations.  Until so exchanged the temporary Bonds shall in all respects be entitled to the same benefits hereunder as definitive Bonds, and the principal of, premium, if any, and interest thereon, when and as payable, shall be paid to the Bondowners of the temporary Bonds.
 
Section 2.13   Execution of Bonds .  The Bonds shall be executed on behalf of the Issuer by its Highest Elected Official under the official seal of the Issuer attested to by its Clerk.  The signatures of the Highest Elected Official and Clerk on the Bonds may be manual or facsimile.  The official seal of the Issuer on the Bonds may be actually impressed or imprinted or may be reproduced thereon by facsimile.
 
 
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Bonds bearing the manual or facsimile signatures of the persons who were the Issuer’s Highest Elected Official and Clerk at the time of the execution thereof shall be valid and sufficient for all purposes notwithstanding that such persons or either of them have ceased to hold such offices prior to the authentication and delivery of the Bonds or did not hold such offices at the date of the Bonds.  For this purpose a Bond executed by facsimile signature shall be deemed to have been executed on the date of the printing thereof.
 
Section 2.14   Authentication .  No Bond shall be entitled to any benefit hereunder or be valid for any purpose unless there appears on such Bond a certificate of authentication substantially in the form set forth in Exhibit B , executed on behalf of the Trustee with the manual signature of an authorized signatory of the Trustee.  Such certificate of authentication executed as aforesaid on a Bond shall be conclusive evidence that such Bond has been authenticated and delivered hereunder.
 
Section 2.15   Provision for Registration, Transfer and Exchange of Bonds .  The Trustee shall cause a register (herein sometimes referred to as the “ Bond Register ”) to be kept for the purpose of providing for the registration and transfer of Bonds in accordance with the provisions of this Section 2.15 and such reasonable additional regulations as the Trustee may prescribe.  Subject to such regulations, any Bondowner may cause its address on the Bond Register to be changed by giving written notice to the Trustee.  At reasonable times and under reasonable regulations established by Trustee, the Bond Register may be inspected and copied by the Borrower, the Issuer or by Bondowners (or a designated representative thereof) of 10% or more in aggregate principal amount of Bonds then Outstanding, the authority of such designated representative to be evidenced to the satisfaction of Trustee.
 
Each Bond shall be fully negotiable.  Any Bond may be transferred but only by a written assignment duly executed by the Bondowner or by such Bondowner’s duly authorized legal representative.  Upon presentation and any other holder of a participating interest in the Bonds of the Bond together with said executed form of assignment at the Trustee’s Principal Office, the Trustee shall register the transfer in the Bond Register; provided , however , that the Trustee shall have no obligation to register the transfer unless the executed assignment shall be satisfactory to it in form and substance.  Upon registration of the transfer of a Bond, the Trustee shall cancel the surrendered Bond and the Issuer shall issue, and the Trustee shall authenticate, one or more new Bonds of authorized denominations of the same maturity and interest rate and in the same aggregate outstanding principal amount as the surrendered Bond.
 
The Bondowner requesting any registration of transfer or exchange of Bonds shall pay with respect thereto any resulting tax or governmental charge.  All such payments shall be conditions precedent to the exercise of the Bondowner’s rights of registration of transfer or exchange.  The Trustee shall not be required to register the transfer or to exchange any particular Bond after such Bond has been selected for redemption.  All registrations of transfer and exchanges of Bonds shall be accomplished in such manner that no increase or decrease in interest payable on the Bonds results therefrom.
 
 
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Section 2.16   Persons Treated as Bondowners .  The Issuer and the Trustee shall treat the person in whose name any Bond is registered as the absolute owner of such Bond for the purpose of receiving payment of the principal of, premium, if any, and interest thereon and for all other purposes whatsoever, whether or not such Bond is overdue and irrespective of any actual, implied or imputed notice to the contrary.  In particular, neither the Participant nor any other holder of a participating interest in the Bonds shall be treated as a Bondowner except in accordance with the provisions described in  the second-to-last sentence of Section 6.20.
 
Section 2.17   Manner of Payment of Bonds .  All principal installments of, premium, if any, and interest on the Bond issued to the Original Purchaser shall be paid directly to the Original Purchaser without presentation or surrender of the Bonds by the Original Purchaser to the Trustee.  The Original Purchaser shall provide confirmation to the Trustee promptly upon receipt of such payment which notice shall include the date of payment, the amount of principal installments of, premium, if any, and interest paid on the Bond.  The interest on any Bond and the principal which is payable and is punctually paid or duly provided for, on any Payment Date shall be paid by check drawn by the Borrowers payable to the order of the person in whose name that Bond is registered as of the close of business on the Record Date for such interest and mailed to such person at the address shown on the Bond Register, initially, the Original Purchaser.  Any interest on any Bond which is payable, but is not punctually paid or duly provided for, may be paid in any lawful manner, at the discretion of the Trustee.  The principal of, premium, if any, and interest on all Bonds shall be paid in lawful money of the United States of America.
 
In any case where the date of maturity of interest on or principal of the Bonds or the date fixed for redemption of any Bonds shall be, in the city in which the Trustee’s Principal Office is located, a Saturday, Sunday or a legal holiday, the payment of principal, premium, if any, and interest need not be made on such date in such city but may be made on the next succeeding Business Day.
 
Interest on any Bond which is payable, and is punctually paid or duly provided for, on any Redemption Date that is not a regularly scheduled Payment Date, shall be paid by check drawn by the Borrower, payable to the order of the person in whose name the Bond is registered at the close of business on the day next preceding such Redemption Date, initially the Original Purchaser.
 
Section 2.18   Mutilated, Lost, Stolen or Destroyed Bonds .  In the event any Bond is mutilated, lost, stolen or destroyed, the Issuer may execute and the Trustee may authenticate a new Bond of like date, maturity and denomination as the Bond mutilated, lost, stolen or destroyed.  In the case of any lost, stolen or destroyed Bond, there shall first be furnished to the Issuer and the Trustee evidence of such loss, theft or destruction satisfactory to the Issuer and the Trustee, together with indemnity satisfactory to them.  In the event any such Bond shall have matured, the Trustee instead of issuing a substitute Bond may pay the same without surrender thereof.  The Issuer and the Trustee may charge the Bondowner of such Bond with their reasonable fees and expenses in this connection.
 
Section 2.19   Trustee Designated as Bond Registrar .  The Trustee shall be the bond registrar for and in respect of all Bonds.
 
Section 2.20   Disposition of Bonds Upon Payment; Safekeeping of Bonds Surrendered for Exchange .  All Bonds fully paid, fully redeemed or purchased by the Trustee for cancellation under the provisions hereof shall be cancelled when such final payment, redemption or
 
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purchase is made, and such cancelled Bonds shall be delivered to the Trustee.  All cancelled Bonds shall be destroyed by the Trustee by cremation, shredding or other suitable means, and the Trustee shall execute a certificate of destruction in duplicate describing the Bonds so destroyed and one executed certificate shall be filed with the Issuer and the other executed certificate shall be retained by the Trustee.
 
Section 2.21   Delivery of Bonds .  Upon the execution and delivery of this Bond Agreement, the Issuer shall issue and execute and deliver the Bonds to the Trustee, and the Trustee shall authenticate such Bonds and deliver them to the purchaser(s) as may be directed by the Issuer.
 
Prior to the delivery of the Bonds by the Trustee there shall be filed with the Trustee:
 
(a)      A certified copy of the resolution(s) of the Issuer authorizing the issuance of the Bonds and the execution and delivery of this Bond Agreement;
 
(b)      An original executed counterparts of this Bond Agreement; and
 
(c)      A request and authorization to the Trustee, executed on behalf of the Issuer by its Highest Elected Official or Clerk, to deliver the Bonds to the purchaser(s) therein identified, in the form and amount requested upon payment to the Trustee, for the account of the Issuer, of a specified sum plus accrued interest on the Bonds to date of delivery thereof.
 
Section 2.22   Parity .  This Bond Agreement is for the equal and ratable benefit and security of all Bonds of all Series issued and to be issued hereunder.  All Bonds of every Series shall be of equal rank, and no Bondowner shall be accorded a preference or priority over any other Bondowner except as expressly authorized or provided herein.
 
Section 2.23   Discharge .  If the Issuer shall pay or cause to be paid from the Pledged Revenues the principal, premium, if any, and interest due or to become due on the Bonds at the times and in the manner stipulated therein, and if the Issuer shall not then be in default in any of the covenants and promises in the Bonds and in this Bond Agreement expressed as to be kept, performed and observed by it or on its part, and shall pay or cause to be paid to the Trustee all sums of money due or to become due according to the provisions hereof, then these presents and the estate and rights hereby granted shall cease, terminate and be void, whereupon the Trustee shall cancel and discharge the lien of this Bond Agreement and execute and deliver to the Issuer such instruments in writing as shall be requisite to cancel and discharge the lien hereof, and reconvey, release, assign and deliver unto the Issuer any and all the estate, right, title and interest in and to any and all property conveyed, assigned or pledged to the Trustee or otherwise subject to the lien of this Bond Agreement, except moneys or securities held by the Trustee in separate segregated trust accounts pursuant to this Bond Agreement for the payment of the principal of, premium, if any, and interest on unpresented Bonds.
 
Any Bonds shall be deemed to be paid when payment of the principal of and premium, if any, on such Bond, plus interest thereon to the due date thereof (whether such due date be by reason of maturity or upon redemption as provided herein, or otherwise) either (a) shall have been made or caused to be made in accordance with the terms hereof, or (b) shall have been provided for by irrevocably depositing with the Trustee, in trust and irrevocably setting aside exclusively for such payment, (i) cash, without regard to any investment or reinvestment thereof, sufficient to make such
 
 
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payment or (ii) Defeasance Obligations which are not callable prior to maturity by the issuer thereof or anyone acting on its behalf maturing as to principal and interest in such amounts and at such times, without regard to any investment or reinvestment thereof, as will provide sufficient moneys, together with any uninvested cash, to make such payment, and all necessary and proper fees and expenses of the Trustee pertaining to the Bond with respect to which such deposit is made.  At such time as a Bond shall be deemed to be paid hereunder as aforesaid, it shall no longer be deemed to be outstanding hereunder and shall no longer be secured by or entitled to the benefits hereof, except for the purposes of any such payment from such moneys or Defeasance Obligations.
 
Notwithstanding the foregoing, no deposit under clause (b) of the immediately preceding paragraph shall be deemed a payment of such Bonds as aforesaid until:
 
(a)      The deposit shall have been made under the terms of an escrow trust agreement in form and substance satisfactory to the Trustee consistent herewith and a verification report with respect to the sufficiency of such deposit prepared by an independent certified public accountant shall have been delivered to the Trustee;
 
(b)      In the case of an escrow trust deposit with respect to Bonds subject to redemption prior to maturity at the option of the Borrower, the Borrowers shall have delivered an irrevocable Borrower’s Certificate designating when such Bonds are to be paid or redeemed under terms of such escrow trust agreement;
 
(c)      In case of Bonds which are to be redeemed prior to maturity from such escrow trust deposit, a redemption notice meeting the requirements of Section 2.08 and stating that such Bonds are being redeemed from a deposit made pursuant to this Section 2.23 shall either (i) have been given, or (ii) shall have been provided for by delivery to the Trustee of irrevocable instructions for the giving of such notice;
 
(d)      The Trustee shall have been furnished with an opinion of Bond Counsel to the effect that the payment of the Bonds in accordance with said escrow trust agreement will not adversely affect the excludability from gross income of the Bondowners for federal income tax purposes and will not cause the Bonds to be classified as “arbitrage bonds” under Section 148 of the Code; and
 
(e)      The Trustee shall have covenanted to give notice of such deposit to the Bondowner of each Bond outstanding at the address shown on the Bond Register.
 
All moneys or Defeasance Obligations set aside and held in trust pursuant to the provisions of this Article for the payment of Bonds (including interest and premium thereon, if any) shall be applied to and used solely for the payment of the particular Bonds (including interest and premium thereon, if any) with respect to which such moneys and Defeasance Obligations have been so set aside in trust.
 
If moneys or Defeasance Obligations have been deposited or set aside with the Trustee pursuant to this Article for the payment of Bonds and the interest and premium, if any, thereon and such Bonds and the interest and premium, if any, thereon shall not have in fact been actually paid in full, no amendment to the provisions of this Section 2.23 shall be made without the consent of the Bondowner of each of the Bonds affected thereby.
 
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ARTICLE   III
 
FUNDS AND ACCOUNTS
 
Section 3.01   Application of Proceeds of Bonds .  The Trustee shall deposit the amount received by it for the account of the Issuer on the Original Issue Date into the appropriate Project Fund Account or Project Fund Accounts established pursuant to Section 3.02.
 
It is the intention of the Parties that neither the entire $3,000,000 principal amount of the Series A Bonds nor the entire $500,000 principal amount of the Series B Bonds nor the entire $500,000 principal amount of the Series C Bonds will, in any case, be funded on the Effective Date.  Rather, the Borrowers will submit one or more Borrowers’ Requisitions to the Trustee and the Original Purchaser in accordance with Section 4.02.  The Original Purchaser shall review each such Borrowers’ Requisition and if, in the Original Purchaser’s absolute discretion, the Original Purchaser shall approve such Borrowers’ Requisition, the Original Purchaser shall (i) disburse the amount requested in such Borrowers’ Requisition directly to or on behalf of the Borrowers as specified in the applicable Borrowers’ Requisition, and (ii) notify the Trustee of such disbursement, and thereupon the Trustee shall be deemed to have received such amount from the Original Purchaser in payment of a corresponding amount of the original purchase price of the Series A Bonds, Series B Bonds or Series C Bonds, as the case may be, and to have deposited such amount into the applicable Project Fund Account, and to have contemporaneously disbursed such amount in payment or reimbursement of Project Costs in accordance with Section 4.02.
 
Section 3.02   Project Fund .  There is hereby created by the Issuer and ordered established with the Trustee a Trust Fund to be designated with the title of the Bonds and the label “Project Fund.”  There is hereby created within the Project Fund three accounts to be designated “Project Fund – Series A Account,” “Project Fund – Series B Account” and “Project Fund – Series C Account” (said accounts being hereinafter referred to the “ Project Fund Accounts ”).  The Trustee shall deposit into the Project Fund Accounts, from time to time when and as received, the amounts specified in Section 3.01 and any additional moneys which the Borrowers may deliver to the Trustee from time to time with the instruction that such moneys be deposited into the Project Fund.
 
The Trustee is hereby authorized and directed to disburse moneys from the Project Fund to pay (or reimburse the Borrowers for) Project Costs.  Except as otherwise provided below, such disbursements shall be made only upon a Borrower’s Requisition made by or on behalf of the Borrowers meeting the requirements of and submitted in accordance with Section 4.02.  Notwithstanding the foregoing, there shall never be disbursed from either the Project Fund – Series A Account or the Project Fund – Series B Account to pay or reimburse any of the costs of acquiring and installing the Project Equipment, and there shall never be disbursed from the Project Fund – Series C Account to pay or reimburse any of the Project Costs other than the costs of acquiring and installing the Project Equipment, in each case including a ratable portion of indirect costs (such as, by way of example and not limitation, Trustee’s fees and the costs of issuing the Bonds).
 
In addition, disbursements from the Project Fund shall be subject to such further terms and conditions as may be contained in the Credit Agreement and the Disbursing Agreement (as defined in the Credit Agreement).
 
 
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If an Event of Default shall have occurred and be continuing, the Trustee (without any authorization from the Borrower) may, if the Trustee has accelerated the Bonds under Section 8.02, apply moneys in the Project Fund in accordance with Section 8.06.
 
Upon the closing of the Project Fund in accordance with Section 4.05, any remaining balance in the Project Fund shall be transferred to the Bond Fund.
 
Section 3.03   Bond Fund .  There is hereby created by the Issuer and ordered established with the Trustee a Trust Fund to be designated with the title of the Bonds and the label “Bond Fund.”  There is hereby created within the Bond Fund three accounts to be designated “Bond Fund – Series A Account,” “Bond Fund – Series B Account” and “Bond Fund – Series C Account” (said accounts being hereinafter referred to the “ Bond Fund Accounts ”).  The Trustee shall deposit into the Bond Fund Accounts, from time to time when and as received:
 
(a)      To the Bond Fund – Series A Account, all payments from or for the account of the Borrowers on the Series A Loan pursuant to Section 3.04 (except prepayments of principal and the premium, if any, thereon required to be deposited into the Redemption Fund pursuant to Section 4.06); and
 
(b)      To the Bond Fund – Series B Account, all payments from or for the account of the Borrowers on the Series B Loan pursuant to Section 3.04 (except prepayments of principal and the premium, if any, thereon required to be deposited into the Redemption Fund pursuant to Section 4.06); and
 
(c)      To the Bond Fund – Series C Account, all payments from or for the account of the Borrowers on the Series C Loan pursuant to Section 3.04 (except prepayments of principal and the premium, if any, thereon required to be deposited into the Redemption Fund pursuant to Section 4.06); and
 
(d)      Moneys required to be transferred to the Bond Fund from other Trust Funds or from Pledged Revenues in accordance with this Bond Agreement.
 
The Issuer covenants that it will deposit or cause to be deposited into the Bond Fund, but solely from Pledged Revenues, amounts sufficient to pay when due the principal of and interest on the Bonds.  Except as otherwise expressly provided herein, moneys in the Bond Fund shall be used solely for the payment of principal of and interest on the Bonds when due at stated maturity, upon redemption prior to maturity, upon acceleration of maturity, or otherwise in accordance with the terms hereof.  The Issuer hereby authorizes and directs the Trustee to withdraw sufficient moneys from the Bond Fund to pay the Bonds and the interest thereon as the same become due and payable.
 
Section 3.04   Redemption Fund .  There is hereby created by the Issuer and ordered established with the Trustee a Trust Fund to be designated with the name of the Bonds and the label “Redemption Fund.”  There is hereby created within the Bond Fund three accounts to be designated “Redemption Fund – Series A Account,” “Redemption Fund – Series B Account” and “Redemption Fund – Series C Account” (said accounts being hereinafter referred to the “ Redemption Fund Accounts ”).  The Trustee shall deposit into the Redemption Fund Accounts, from time to time when and as received:
 
 
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(a)      To the Redemption Fund – Series A Account, all prepayments from or for the account of the Borrowers pursuant to Section 2.05(c) of principal on the Series A Loan together with the premium, if any, thereon pursuant to;
 
(b)      To the Redemption Fund – Series B Account, all prepayments from or for the account of the Borrowers pursuant to Section 2.05(c) of principal on the Series B Loan together with the premium, if any, thereon pursuant to;
 
(c)      To the Redemption Fund – Series C Account, all prepayments from or for the account of the Borrowers pursuant to Section 2.05(c) of principal on the Series C Loan together with the premium, if any, thereon pursuant to; and
 
(d)      Moneys required to be transferred to the Redemption Fund from other Trust Funds in accordance with this Bond Agreement.
 
The Issuer hereby authorizes and directs the Trustee to (i) transfer funds from the Redemption Fund to the Bond Fund when and as required to pay the principal of any Bonds called for redemption in accordance with this Bond Agreement; (ii) withdraw funds from the Redemption Fund to pay any premiums payable on Bonds called for redemption in accordance with this Bond Agreement; and (iii) transfer funds from the Redemption Fund to the Bond Fund to pay the final payment of principal on the Bonds at the last maturity thereof.  Except to the extent moneys in the Redemption Fund are needed for the purposes described in the foregoing clauses (i) and (ii), the Trustee is authorized to use funds in the Redemption Fund for the purchase of Bonds for cancellation; provided that such purchases shall be made only to the extent authorized by the Borrowers in a Borrowers’ Certificate; and provided further that the purchase price for any Bond so purchased shall not exceed the principal amount thereof plus any accrued and unpaid interest thereon.
 
Section 3.05   Insurance and Condemnation Proceeds Fund .  There is hereby created by the Issuer and ordered established with the Trustee a Trust Fund to be designated with the name of the Bonds and the label “Insurance and Condemnation Proceeds Fund.”
 
The Trustee shall deposit into the Insurance and Condemnation Proceeds Fund, when and as received, the Net Proceeds of title insurance claims, casualty insurance claims and eminent domain awards in accordance with and to the extent provided herein.
 
The Trustee is hereby authorized and directed to use moneys in the Insurance and Condemnation Proceeds Fund in accordance with directions from the Borrowers in a Borrowers’ Certificate, with the Original Purchaser’s consent (subject, however, to the rights of the Bondowners to require prepayment on the Bonds pursuant to Section 2.06), for any of a combination of the following purposes:
 
(a)      To pay or reimburse the Borrowers for the costs of repairing, restoring, replacing or rebuilding any of the Project or Project Equipment damaged or destroyed by fire or other casualty, provided that such disbursements shall be made only upon a Borrower’s Requisition substantially in the same form and manner as provided for disbursements from the Project Fund, provided , however , that such new property shall be subject to Mortgage to the satisfaction of the Trustee and the Original Purchaser;
 
 
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(b)      To pay or reimburse the Borrowers for the costs of acquiring or constructing other land and facilities in the Issuer to replace any property destroyed by fire or other casualty, taken by eminent domain or lost by reason of title defect, provided that such disbursements shall be made only upon a Borrower’s Requisition substantially in the same form and manner as provided for disbursements from the Project Fund, provided , however , that such new property shall be subject to the Mortgage to the satisfaction of the Trustee and the Original Purchaser; or
 
(c)      To transfer to the Redemption Fund if the Borrowers elect to prepay, or the Bondowners elect to require prepayment of, all of the Loan pursuant to Section 2.06.
 
Section 3.06   Rebate Credit Account; Arbitrage .  There is hereby created and established a “Rebate Credit Account” which shall be held by the Trustee and which shall be used solely for the purpose of making payments in accordance with the requirements of Section 148 of the Code, and applicable regulations thereunder.  On each Computation Date, the Borrowers shall compute or cause to be computed the amount of rebatable arbitrage earned by the Issuer during the previous Computation Period.  Computation Dates shall be January 31, 2012 (or such other date as the Borrowers may elect as permitted by Section 148 of the Code and applicable regulations) and each fifth anniversary of such date thereafter so long as any of the Bonds are outstanding after such Computation Date.  The final Computation Date shall be the date the last Bond is paid for and redeemed.  The Computation Period shall be, as of each Computation Date, the period from the next previous Computation Date (or from the Original Issue Date, for the first Computation Period).
 
The amount computed to be rebatable arbitrage as of each Computation Date (the “ Rebate Credit Amount ”) shall be paid by the Borrowers to the Trustee for deposit to the Rebate Credit Account as of such Computation Date.  The Borrowers have agreed in Section 4.07 to fund the deficiency if the amounts on deposit in the funds and accounts created by this Bond Agreement are less than the Rebate Credit Amount. The Trustee is authorized to hire such experts as it deems necessary to make this calculation, which shall be an expense of the Trustee paid by the Borrowers under Section 4.07.  All earnings from the reinvestment of any amounts in the Rebate Credit Account shall remain in the Rebate Credit Account.
 
Within 60 days of each Computation Date, the Borrowers shall cause the Trustee to pay to the United States at least 90% of the rebatable arbitrage as of such Computation Date, and within 60 days of the final Computation Date, the Borrowers shall cause the Trustee to pay to the United States all of the rebatable arbitrage as of the final Computation Date and any income attributable to such rebatable arbitrage; provided , however , that no such income shall be included in the final rebate payment if such income is less than $300.  The Trustee shall pay such amounts by check or draft to the United States; and file a copy of the Form 8038 received from the Borrowers with respect to the Bonds and a statement summarizing the determination of the amount required to be paid to the United States with the Internal Revenue Service Center, Ogden, Utah 84201.
 
Notwithstanding anything to the contrary in this Section, rebatable arbitrage shall be calculated and paid as provided in Section 148(f) of the Code and applicable regulations thereunder.  In the event the Issuer is or the Borrowers are of the opinion (supported by an opinion of Bond Counsel) that it is necessary or advisable to restrict or limit the yield on the investment of any moneys held in any Trust Fund in order to avoid the Bonds being considered “arbitrage bonds” within the meaning of Section 148(f) of the Code, the Issuer may (and shall if so requested by the
 
 
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Borrower) issue to the Trustee a written certificate to such effect together with appropriate written instructions, in which event the Trustee shall take such action as is necessary so to restrict or limit the yield on such investment in accordance with such certificate and instructions, irrespective of whether the Trustee shares such opinion.
 
Section 3.07   Trust Funds Held in Trust .  All Trust Funds shall be held in trust in the custody of the Trustee, subject to the provisions hereof which permit disbursements from the Trust Funds.  All moneys and securities held in Trust Funds, except the Rebate Credit Account, shall be subject to the first lien of this Bond Agreement thereon and shall not be subject to lien, attachment, garnishment or other claims or proceedings by other creditors of the Borrowers or the Issuer (other than the Original Purchaser and the Trustee for the benefit of the Bondowners).
 
Section 3.08   Permitted Investment of Trust Funds .  Moneys held in the Trust Funds, upon the direction of the Borrower, shall be separately invested and reinvested by the Trustee in accordance with this Article.  Each investment shall be held by or under the control of the Trustee and shall be deemed at all times to be part of the particular Trust Fund in which such moneys were held.  Income, profit and loss from any such investment shall be credited or charged to the particular Trust Fund for whose account the investment was made.
 
All such investments and reinvestments shall be made in Qualified Investments having a maturity not later than the estimated time when the moneys so invested will be needed for the purposes of the Trust Fund of which they are a part.
 
The Trustee may make and execute any such investment through its own bond department, money center or other investment operation or through the bond department, money center or investment operation of any affiliated bank.
 
ARTICLE   IV
 
TERMS OF LOANS
 
Section 4.01   Amount and Source of Loan s .
 
(a)      Series A Loan .  The Issuer will lend to the Borrowers and the Borrowers will borrow from the Issuer, upon the terms and conditions specified herein, the amount (not to exceed $3,000,000) of Proceeds received by the Issuer from the sale of the Series A Bonds  by causing such Bond Proceeds to be credited to the Project Fund – Series A Account under Section 3.01 for disbursement in accordance with Section 4.02 (the “Series A Loan”).  The Issuer shall be obligated to lend only moneys transferred to the Trustee from the Original Purchaser for deposit in the Project Fund – Series A Account as evidenced by the Original Purchaser’s approval of a Borrower’s Requisition in the form set forth in Exhibit D.  The outstanding principal amount of the Series A Loan shall at all times be in balance with the principal amount of the Series A Bonds Outstanding.
 
(b)      Series B Loan .  The Issuer will lend to the Borrowers and the Borrowers will borrow from the Issuer, upon the terms and conditions specified herein, the amount (not to exceed $500,000) of Proceeds received by the Issuer from the sale of the Series B Bonds by causing such Proceeds to be credited to the Project Fund – Series B Account under Section 3.01 for disbursement in accordance with Section 4.02 (the “ Series B Loan ”).  The Issuer shall be obligated to lend only
 
 
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moneys transferred to the Trustee from the Original Purchaser for deposit in the Project Fund – Series B Account as evidenced by the Original Purchaser’s approval of a Borrower’s Requisition in the form set forth in Exhibit D .  The outstanding principal amount of the Series B Loan shall at all times be in balance with the principal amount of the Series B Bonds Outstanding.
 
(c)      Series C Loan .  The Issuer will lend to the Borrowers and the Borrowers will borrow from the Issuer, upon the terms and conditions specified herein, the amount (not to exceed $500,000) of Proceeds received by the Issuer from the sale of the Series C Bonds by causing such Proceeds to be credited to the Project Fund – Series C Account under Section 3.01 for disbursement in accordance with Section 4.02 (the “ Series C Loan ”).  The Issuer shall be obligated to lend only moneys transferred to the Trustee from the Original Purchaser for deposit in the Project Fund – Series C Account as evidenced by the Original Purchaser’s approval of a Borrower’s Requisition in the form set forth in Exhibit D .  The outstanding principal amount of the Series C Loan shall at all times be in balance with the principal amount of the Series B Bonds Outstanding.
 
Section 4.02   Withdrawals from the Project Fund .  Subject to and as limited by Section 3.02, the Issuer has authorized and directed the Trustee to disburse money from the Project Fund in payment or reimbursement of Project Costs certified by the Borrower, or otherwise satisfactorily established, to be due and payable or to have been paid or incurred by or on behalf of the Borrower.  The Trustee shall not disburse any funds from the Project Fund except upon receipt of a Borrower’s Requisition in the form attached hereto as Exhibit D , approved and funded by the Original Purchaser.
 
In addition, the Borrowers recognize the right of the Trustee or the Original Purchaser to require additional documentation regarding the progress of the Project, absence of liens, percentage of completion, incurrence of costs and similar matters prior to disbursing moneys from the Project Fund, where deemed reasonably necessary.  Such documents may include without limitation:
 
(a)      Evidence (which may be in the form of acknowledgments of governmental authorities having jurisdiction over the Project, or of public utilities) that all off-site and on-site utilities, including without limitation those for electricity, natural gas, water and sewage, are available to the Project;
 
(b)      Copies of licenses, permits and all certificates required by any governmental authority in connection with the construction of the Project; and
 
(c)      If requested by the Trustee, a statement by the Borrowers and any subcontractor as to its subcontract, in form and in substance satisfactory to the Trustee, setting forth the names, addresses and amounts due or to become due, the amounts previously paid to every subcontractor, person, firm or corporation furnishing materials or performing labor entering into the construction of any part of the Project and lien waivers duly executed in a form acceptable to the Trustee, delivered before or contemporaneously with the Trustee’s disbursement of Bond proceeds.
 
(d)      The Borrowers hereby acknowledge and agree that the approval required of the Original Purchaser to funding transfers, as provided in Sections 3.01, 3.02, 4.01 and this Section 4.02, and as provided in Exhibit D (Form of Borrower’s Requisition), shall be solely within the Original Purchaser’s absolute discretion, provided that such approval shall not be unreasonably withheld.
 
 
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Section 4.03   Establishment of Completion Date .  The Completion Date shall be the date on which the Trustee shall acknowledge receipt of the following items, which the Borrowers shall furnish to the Trustee with respect to the Project:
 
(a)      A certificate signed by the Borrowers or an independent architect stating, or other satisfactory evidence establishing, that the construction, acquisition, purchase, improving, equipping, furnishing or installation of the Project has been completed, but that the certificate is given without prejudice to any rights against third parties which exist at the date thereof or which may subsequently come into being;
 
(b)      A certificate signed by the Borrowers stating, or other satisfactory evidence establishing, that the entire Project Costs have been paid or are then due and payable pursuant to Section 4.02; and
 
(c)      If necessary, a certificate of occupancy for the Project issued by the governmental authority having jurisdiction.
 
Section 4.04   Completion Date .  The Project will be completed within 36 months of the Original Issue Date, and all amounts in the Project Fund will be expended within 36 months of the Original Issue Date.
 
Section 4.05   Distribution of Project Fund on Completion Date .  On the Completion Date, any balance remaining in the Project Fund shall be disbursed by the Trustee to or for the benefit of the Borrowers or on their order in such amount as may be necessary (and all thereof shall be disbursed if necessary) to pay, or to reimburse the Borrowers for the payment of, any Project Costs which have not been paid previously by the Borrowers or have not been reimbursed to the Borrower, as the case may be, in accordance with the provisions of Section 4.02.  Any balance then remaining in the Project Fund in excess of amounts, if any, disbursed as provided above, shall be transferred to the Bond Fund and shall be used to pay principal and interest on the Bonds as same shall become due and payable within ninety (90) days of the Completion Date.
 
Section 4.06   Repayment of Loan .  The Borrowers will pay to the Trustee at the Trustee’s Principal Office for the account of the Issuer, and for deposit in the Bond Fund, in immediately available funds on each Payment Date, the exact amount of interest and principal payable on that Payment Date.  This provision shall be construed so that the obligation of the Borrowers shall never be greater than to have on deposit in the Bond Fund on any Payment Date the exact amount of principal and interest due on the Bonds on that Payment Date (except for the amount of additional payments required by Section 2.04 and Section 4.07 and amounts necessary to provide for the mandatory redemption of Bonds at the time and in the manner provided herein).  In the event the Borrowers should fail to make any of the payments required in this Section 4.06, the item so in default shall continue as an obligation of the Borrowers until the amount in default shall have been fully paid, and the Borrowers agree to pay such amount with interest thereon (including, to the extent permitted by law, interest on the overdue installments of interest) at the Default Rate on those Bonds as to which such default exists.
 
Section 4.07   Additional Payments .  The Borrowers will also pay the following amounts to the following persons:
 
 
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(a)      To the Trustee, when due, all fees of the Trustee for services rendered hereunder and all reasonable fees and charges of counsel, accountants, engineers, consultants and others incurred in the performance on request of the Trustee of any and all services hereunder and under the No Arbitrage Certificate for which the Trustee and such other persons are entitled to payment or reimbursement; and
 
(b)      To the Trustee, for deposit into the Rebate Credit Account, the amount needed to be paid to comply with Section 148 of the Code and Section 3.06.
 
Section 4.08   Borrowers’ Obligations Unconditional .  The Borrowers’ obligations under Section 4.06 shall be in the nature of a Loan and shall be evidenced by a Promissory Note in the form set forth in Exhibit C attached hereto.  All payments required of the Borrowers hereunder shall be paid without notice or demand and without set-off, counterclaim, abatement, deduction or defense.  Except as expressly provided herein, the Borrowers will not suspend or discontinue any Loan Repayments, will perform and observe all of its other agreements in this Bond Agreement, and will not terminate this Bond Agreement for any cause, including but not limited to any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Project, eviction by paramount title, commercial frustration of purpose, bankruptcy or insolvency of the Issuer, the Trustee or the Original Purchaser, change in the tax or other laws or administrative rulings or actions of the United States of America or of the State of Wisconsin or any political subdivision thereof or failure of the Issuer to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with this Bond Agreement.
 
Section 4.09   Credit for Accrued Interest and Investment Earnings on Bond Fund .  The accrued interest, if any, deposited in the Bond Fund pursuant to Section 3.01 shall be credited against the first payment of interest due hereunder.  Any earnings from the investments of Bond Fund balances shall be applied to the payment of interest on the Bonds and credited against payments of interest hereunder at the earliest opportunity.
 
Section 4.10   Prepayment of Loan .  Subject to the provisions of Section 2.05 and Section 2.07, the Borrowers may at any time transmit funds directly to the Trustee, for deposit in the Redemption Fund, in addition to amounts, if any, otherwise required at that time pursuant to this Bond Agreement, and direct that the money be utilized by the Trustee to:
 
(a)      Provide for the payment of Bonds prior to their maturity dates, as provided in Section 2.05; or
 
(b)      Purchase Bonds, in accordance with the provisions of Section 2.07, which Bonds shall be cancelled by the Trustee.
 
Section 4.11   Other Security .  In addition to the revenues set forth in this Bond Agreement out of which the Bonds shall be payable, the Bonds shall be secured as otherwise described herein and in the Security Documents.
 
Section 4.12   Nature of Borrowers’ Obligations .  The Borrowers’ obligations hereunder include any payments required hereunder or under any of the Security Documents
 
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(including the disbursement of Bond proceeds and the return of any deposits or other collateral) from the Original Purchaser to the Borrower.
 
Section 4.13   Fees and Expenses of Issuer .  The Borrowers covenant and agree to pay to or on behalf of the Issuer the reasonable fees and expenses, including reasonable attorneys’ fees, of the Issuer in connection with this Bond Agreement, the Project or the Bonds including, without limitation, any and all fees and expenses incurred in connection with the authorization, issuance, sale and delivery of the Bonds and administration of the Bonds.
 
ARTICLE   V
 
ISSUER’S REPRESENTATIONS AND COVENANTS
 
Section 5.01   Payment of Principal and Interest .  The Issuer covenants that it will promptly pay or cause to be paid, the principal of, and interest and premium, if any, on every Bond issued hereunder at the place, on the dates and in the manner and solely from the source provided herein and in the Bonds, according to the terms thereof.  Notwithstanding the foregoing, the principal of, premium, if any, and interest on the Bonds are payable solely from the Pledged Revenues, which Pledged Revenues are hereby specifically assigned and pledged to the payment thereof in the manner and to the extent herein specified and from funds provided by the Borrowers as provided herein.
 
Section 5.02   Performance of and Authority for Covenants .  The Issuer covenants that it will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained herein, in any and every Bond executed, authenticated and delivered hereunder and in all proceedings of its governing body pertaining thereto, and it is duly authorized under the Constitution and laws of the State of Wisconsin to issue the Bonds authorized hereby, to make a loan for the purpose of financing Project Costs, and to assign and pledge the Pledged Revenues, in the manner and to the extent herein set forth; and that all action on its part for the issuance of the Bonds and the execution and delivery of this Bond Agreement has been duly and effectively taken.
 
Section 5.03   Right to Payments; Instruments of Further Assurance .  The Issuer covenants that it will defend against the claims and demands of all persons whomsoever its right to the payment of amounts due from the Borrowers under this Bond Agreement and the Promissory Note, for the benefit of the Bondowners.  The Issuer covenants that it will do, execute, acknowledge and deliver, or cause to be done, executed, acknowledged and delivered, such indentures supplemental hereto and such further acts, instruments and transfers as the Trustee may reasonably require for the better assuring, transferring, conveying, pledging, assigning and confirming unto the Trustee all and singular the rights assigned hereby and the amounts pledged hereby to the payment of the principal of, premium, if any, and interest on the Bonds.  The Issuer covenants and agrees that, except as herein provided, it will not sell, convey, mortgage, encumber or otherwise dispose of any part of the revenues and receipts from this Bond Agreement and the Promissory Note nor its rights under this Bond Agreement and the Promissory Note.
 
Section 5.04   Title to Project .  The Issuer acknowledges that, as between the Issuer and the Borrowers neither the Issuer nor the Trustee shall be entitled to or have any security
 
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interest in or lien upon the Project or the Borrowers’ title to and interest in the Project other than pursuant to the Security Documents.
 
Section 5.05   Cooperation of the Issuer and Trustee .  So long as no Event of Default has occurred and is continuing and subject to the provisions in the Security Documents, the Issuer and Trustee will cooperate fully with the Borrowers in filing any proof of loss with respect to any insurance policy covering casualties referred to in Section 6.06 and in the handling and conduct of any litigation arising with respect thereto, and will, to the extent they may lawfully do so, permit the Borrowers to litigate in any such litigation or proceeding in the name and on behalf of the Trustee, provided that the Issuer will not be required to prosecute any such litigation.  So long as no Event of Default has occurred and is continuing, the Trustee will cooperate fully with the Borrowers in the handling and conduct of any prospective or pending condemnation proceedings affecting the Project, and will, to the extent it may lawfully do so, permit the Borrowers to litigate in any such litigation or proceeding in the name and on behalf of the Trustee.  So long as no Event of Default has occurred and is continuing, in no event will the Issuer or Trustee voluntarily settle or consent to the settlement of any proceeding arising out of any insurance claim, or any prospective or pending condemnation proceeding, with respect to the Project without the written consent of the Borrower, which consent shall not be unreasonably withheld.
 
Section 5.06   Performance by Issuer .  Notwithstanding anything in this Agreement to the contrary, the Issuer shall be under no obligation to take any action or execute, prepare or deliver any instrument or document until it shall have received assurances satisfactory to it that the Borrowers or the Trustee shall pay in advance or reimburse it (at the Issuer’s option) for its reasonable expenses incurred or to be incurred in connection with the taking of such action, (including reasonable attorneys’ fee) and shall be indemnified against any possible liability arising out of the taking of such action.
 
ARTICLE   VI
 
BORROWERS’ REPRESENTATIONS AND COVENANTS
 
Section 6.01   Representations by the Borrower s Individually
 
(a)      M & W .  Except as otherwise stated herein, M & W makes the following representations as the basis for its covenants herein:
 
        (i)      M & W is a duly organized and validly existing Wisconsin limited liability company and: (i) no filing has been made with the Wisconsin Department of Financial Institutions of Articles of Dissolution with respect to M & W, (ii) the members of M & W have not taken any action authorizing the liquidation or dissolution of M & W, (iii) M & W has filed with the Wisconsin Department of Financial Institutions the required annual report for its most recently completed report year , and (iv) M & W is not the subject of a proceeding under Wisconsin Statutes Section 183.09025 to cause its dissolution, and no determination has been made that grounds exist for such action.
 
         (ii)      M & W is authorized to execute, deliver and perform its obligations hereunder and to execute, deliver, file or record this Bond Agreement, the Promissory Note,
 
 
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the Security Documents and such other papers, document or instruments as shall be necessary to carry out the intention and purpose hereof.
 
         (iii)       The execution and delivery of this Bond Agreement, the Promissory Note and the Security Documents, the consummation of the transactions contemplated by such instruments, and the fulfillment of the terms and conditions of such instruments do not and will not conflict with or result in a breach of any of the terms or conditions of the M & W Organizational Documents, or any mortgage, indenture, loan agreement or other restriction or of any agreement or instrument to which M & W is now a party or to which any property of M & W is subject, and do not and will not constitute a default under any of the foregoing or result in the creation or imposition of any lien, charge or encumbrance of any nature upon any of the property or assets of M & W contrary to the terms of any instrument or agreement to which M & W is a party or by which any of its property or assets is bound.
 
         (iv)      This Bond Agreement constitutes the legal, valid and binding obligation of M & W, enforceable in accordance with its terms, except as the enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, conservatorship, receivership or similar laws affecting the enforcement of creditors' rights generally and general equitable principles.
 
(b)      Advanced .  Except as otherwise stated herein, Advanced makes the following representations as the basis for its covenants herein:
 
         (i)      Advanced is a corporation validly existing under the laws of the State of Wisconsin and: (i) no filing has been made with the Wisconsin Department of Financial Institutions of Articles of Dissolution or a decree of dissolution with respect to Advanced, (ii) the Board of Directors of Advanced has not taken any action authorizing the liquidation or dissolution of Advanced, (iii) Advanced has filed with the Wisconsin Department of Financial Institutions the required annual report for its most recently completed report year,  nd (iv) Advanced is not the subject of a proceeding under Wisconsin Statutes Section 181.1421 to cause its dissolution, and no determination has been made that grounds exist for such action.
 
         (ii)      The execution and delivery of this Bond Agreement, the Promissory Note and the Security Documents, the consummation of the transactions contemplated by such instruments, and the fulfillment of the terms and conditions of such instruments do not and will not conflict with or result in a breach of any of the terms or conditions of the Advanced Organizational Documents, or any mortgage, indenture, loan agreement or other restriction or of any agreement or instrument to which Advanced is now a party or to which any property of Advanced is subject, and do not and will not constitute a default under any of the foregoing or result in the creation or imposition of any lien, charge or encumbrance of any nature upon any of the property or assets of Advanced contrary to the terms of any instrument or agreement to which Advanced is a party or by which any of its property or assets is bound.
 
         (iii)      This Bond Agreement constitutes the legal, valid and binding obligation of Advanced, enforceable in accordance with its terms, except as the
 
 
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enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, conservatorship, receivership or similar laws affecting the enforcement of creditors' rights generally and general equitable principles.
 
(c)      Mancls .  Except as otherwise stated herein, the Mancls, individually and jointly and severally make the following representations as the basis for their covenants herein:
 
(i)      Each of them is an adult resident of the State of Wisconsin and they are married to each other.
 
(ii)          This Bond Agreement and the obligations evidenced or contemplated hereby are being incurred in the interest of their marriage or family and each consents to the incurrence of such obligations by the other and each of them acknowledges that they have received adequate consideration for the incurrence of such obligations.
 
(iii)        The execution and delivery of this Bond Agreement and the Promissory Note, the consummation of the transactions contemplated by such instruments, and the fulfillment of the terms and conditions of such instruments do not and will not conflict with or result in a breach of any of the terms or conditions of any mortgage, indenture, loan agreement or other restriction or of any agreement or instrument to which either or both of them is now a party  (including any martial property or similar agreement) or to which the property of either or both of them is subject, and do not and will not constitute a default under any of the foregoing or result in the creation or imposition of any lien, charge or encumbrance of any nature upon any of the property or assets of either or both of them contrary to the terms of any instrument or agreement to which either or both of them is a party or by which any of his, her or their property or assets is bound.
 
(iv)      This Bond Agreement constitutes the legal, valid and binding obligation of each of them, individually, enforceable in accordance with its terms, except as the enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, conservatorship, receivership or similar laws affecting the enforcement of creditors' rights generally and general equitable principles.
 
(v)      Neither of them has been adjudged an incompetent or spendthrift and neither of them is the subject of any guardianship nor is any such guardianship or similar proceeding pending or threatened.
 
(vi)      Neither of them has entered into this Bond Agreement or the transactions contemplated under duress, threat or coercion of any kind or nature.
 
Section 6.02   Representations by the Borrowers Collectively .  Except as otherwise stated herein, the Borrowers, individually, collectively and jointly and severally make the following representations as the basis for their covenants herein:
 
(a)      The assistance in the financing of the Project by the Issuer has been and is a substantial inducement to the Borrowers to undertake the Project.
 
 
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(b)      The Bond Proceeds to be credited to the Project Fund in accordance with Section 3.02 are estimated, on the date hereof, to be sufficient, with other amounts to be provided by the Borrowers, to pay Project Costs.
 
(c)      The Borrowers are not relying on any warranty of the Issuer, the Trustee or the Original Purchaser either express or implied, that the Project will be suitable to the Borrowers’ needs.
 
(d)      There is not pending any suit, action or proceeding against or affecting any Borrower before or by any court, arbitrator, administrative agency or other governmental authority which materially and adversely affects the validity, as to such Borrower, of any of the transactions contemplated by this Bond Agreement or the ability of any Borrower to perform its or their obligations hereunder or as contemplated hereby.
 
(e)      The Project as designed and proposed to be operated meets, on the date hereof, all material requirements of law, including requirements of any federal, state, county, city or other governmental authority having jurisdiction over the Borrowers, the Project or its use and operation, including, without limitation, any zoning, land use or similar laws and regulations.
 
(f)      As of the date hereof, the Borrowers have obtained or will obtain, as required throughout the construction, equipping and operation of the Project, all necessary approvals, whether legal or administrative, from all applicable federal, state or local entities or agencies required, for the purchase, construction, equipping and operation of the Project.
 
(g)      The businesses of the Borrowers has been operated in full compliance with all Environmental Laws, the Borrowers are not subject to any Environmental Liability relating to the conduct of its business and no facts or circumstances exist which could give rise to such Environmental Liabilities.  No notice has been served on the Borrowers claiming any violation of Environmental Laws, asserting Environmental Liability or demanding payment or contribution for Environmental Liability or violation of Environmental Laws.
 
Section 6.03   Completion of Project by the Borrower s .  The Borrowers have completed, or will complete the Project as promptly as practicable in material accordance with the budget set forth in the Tax Certificate.
 
Section 6.04   Payment of Project Costs by the Borrower .  The Borrowers agree that they will provide promptly any and all sums of money required to complete the Project, including without limitation all of the Project Costs, which the Issuer agrees shall be payable or reimbursable to the extent and in the manner provided in Section 4.02.
 
Section 6.05   Sums for Completion .  The Issuer, the Trustee and the Original Purchaser make no representation or warranty, express or implied, that the moneys on deposit in the Project Fund will be sufficient to pay the entire Project Costs.  If the Project Fund is not sufficient to pay the entire Project Costs, the Borrowers shall nonetheless complete the construction, equipping, improving and installation of the Project and pay all costs incurred therefor without further reimbursement.  No payments by the Borrowers under this Section 6.05 shall reduce the obligations of the Borrowers or offset any other payment required to be made by the Borrowers hereunder.
 
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Section 6.06   Borrowers to Repair, Replace, Rebuild or Restore .  If there are any Outstanding Bonds when all or any part of the Project is taken by eminent domain, or destroyed or damaged, and unless the Borrowers or the Bondowners exercise their independent options to direct the redemption of any or all Outstanding Bonds pursuant to Section 2.05, the following subsections shall apply:
 
(a)      The Borrowers shall proceed promptly, subject to the provisions of subsection (b) of this Section 6.06, to replace, repair, rebuild and restore the Project to substantially the same condition as existed before the taking or event causing the damage or destruction, with such changes, alterations and modifications (including substitution or addition of other property) as may be desired by the Borrowers and will be suitable for continued operation of the Project for the business purposes of the Borrower, and the Borrowers will pay all costs thereof.
 
(b)      If the condemnation award or insurance claim is less than $5,000, the Trustee shall pay the Net Proceeds to the Borrower.  If the condemnation award or insurance claim exceeds $5,000, all Net Proceeds of the condemnation award or insurance claim shall be retained by the Trustee and deposited in the Insurance and Condemnation Proceeds Fund.  The Trustee shall apply the Net Proceeds in compliance with Section 3.05.  If the Net Proceeds are not sufficient to pay such costs in full, the Borrowers shall pay that portion of the cost in excess of the amount of the Net Proceeds and shall complete such repair, replacement, rebuilding or restoration.
 
(c)      The Borrowers shall not, by reason of the payment of any costs of repair, rebuilding, replacement or restoration, be entitled to any reimbursement from the Issuer or any abatement or diminution of the amounts payable hereunder.  Any balance of Net Proceeds remaining in the Insurance and Condemnation Proceeds Fund after payment of all costs of any repair, rebuilding, replacement or restoration and after completion of the same shall be paid into the Bond Fund and used to redeem Bonds pursuant to Section 2.05 or, if there are no Outstanding Bonds, to the Borrower.
 
(d)      All buildings, improvements and equipment acquired in the repair, rebuilding, replacement or restoration of the Project, together with any interests in land acquired by the Borrowers necessary for such restoration, shall be deemed a part of the Project and available for use and occupancy by the Borrowers without the payment of any additional amounts other than those provided herein, and shall be made subject to the Mortgage provided that no land, interest in land, buildings or improvements shall be acquired subject to any lien or encumbrance.
 
(e)      The Net Proceeds of any (i) insurance attributable to damage or destruction separately incurred by property of a Borrower not comprising part of the Project, (ii)  condemnation award separately awarded for damages to or taking of the property of the Borrowers not comprising part of the Project, or for damages on account of the taking of or interference with the Borrowers’ rights to possession, use or occupancy of any property of the Borrowers not constituting the Project, or (iii) title insurance insuring title to land not comprising part of the Project, shall be and remain at all times the property of the Borrower, subject to such other agreements as the Borrowers may have in place with the Original Purchaser or other creditors.
 
 
 
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Section 6.07   Maintenance of Property; Insurance .  The Borrowers shall:
 
(a)      Keep all Property useful and necessary in their respective businesses, whether leased or owned, in all material respects in good condition, repair and working order (ordinary wear and tear excepted) and from time to time make or cause to be made all needed and proper repairs, renewals, replacements, additions and improvements so that the business carried on in connection therewith may be properly and advantageously conducted at all times.
 
(b)      Maintain with good, reputable and financially sound insurance underwriters insurance of such nature and in such amounts as is customarily maintained by companies engaged in the same or similar business and such other insurance as may be required by law or as may be required in the Security Documents.
 
(c)      Have the Trustee named as an additional insured.
 
Section 6.08   Compliance with Zoning Laws .  The use of the Project shall at all times be and continue to be in full compliance with all applicable zoning laws and ordinances.  The Borrowers shall not initiate or acquiesce in any zoning reclassification, or seek any conditional use permit or variance without the written consent of the Issuer and the Original Purchaser while it remains a Bondowner.
 
Section 6.09   Indemnification .  The Borrowers agree to indemnify and save harmless the Issuer, the Original Purchaser and the Trustee and each of their respective officers, agents and employees from and against any and all losses, damages, costs, charges, expenses (including attorney’s fees), causes of action, suits, claims, demands, judgments and liabilities arising from:
 
(a)      Any injury to or death of any person or damage to property in or upon the Project or growing out of or connected with the use, nonuse, condition or occupancy of the Project;
 
(b)      Violation of any agreement or condition of this Bond Agreement, except those knowingly violated by the Issuer;
 
(c)      Violation of any contract, agreement or restriction by any Borrower relating to the Project which shall have existed at the commencement of the term of this Bond Agreement;
 
(d)      Violation of any law, ordinance or regulation by any Borrower affecting the Project or a part thereof or the ownership, occupancy or use of the Project;
 
(e)      Any statement or information relating to the expenditure of the Bond Proceeds contained in the “Arbitrage Certificate” or similar document furnished by any Borrower to the Issuer, the Original Purchaser or the Trustee which, at the time made, is misleading, untrue or incorrect in any material respect;
 
(f)      Any audit or investigation of the Bonds by the Internal Revenue Service or the United States Department of the Treasury;
 
(g)      Any statement or information furnished to the Original Purchaser of the Bonds by any Borrower;
 
 
 
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(h)      Any liability arising under any applicable federal, state or local environmental law relating to the Project or the Bonds, not resulting from the negligence or willful misconduct of the Issuer or the Trustee; and
 
(i)      Any other event or circumstance relating to the Project or the Bonds not described above not resulting from the negligence or willful misconduct of such indemnified party.
 
The obligations of the Borrowers under this Section 6.09 shall survive any assignment or termination of the Bond Agreement.
 
Section 6.10   Assurance of Tax-exemption .  In order to assure that the interest on the Bonds shall at all times be free from Federal income taxation, the Borrowers covenant with the Issuer, the Trustee and all Bondowners that they will:
 
(a)      Not use the proceeds of the Bonds in such a manner as to cause the Bonds to be classified “arbitrage bonds” under Section 148 of the Code and applicable regulations.
 
(b)      Comply with and fulfill all other requirements and conditions of the Code and regulations and rulings relating to the Project and not take any action, or refrain from taking any action, or permit others to take any action or refrain from taking any action if the result thereof would be to cause the interest on the Bonds to be included in the gross income of a Bondowner.
 
Section 6.11   Legal Existence; Compliance with Laws; Maintenance of Business; Taxes .  Each of Advanced and M &W  shall maintain its legal existence as a corporation and limited liability company, respectively, and will not dissolve or otherwise dispose of all or substantially all its assets or consolidate with or merge into another legal entity or permit one or more other legal entities to consolidate with or merge into it, except that Advanced and M & W may, without violating the foregoing, consolidate with or merge into each other or into any other legal entity, or permit one more other legal entities to consolidate with or merge into it, or transfer all or substantially all its assets to another such legal entity (and thereafter be released of all further obligation under this Agreement and dissolve or not dissolve as such Borrower may elect) if (i) the resulting, surviving or transferee legal entity, as the case may be, is a legal entity established and duly existing under the laws of one of the states of the United States of America; (ii) such resulting, surviving or transferee legal entity expressly assumes in writing all of the obligations of such Borrower contained in this Bond Agreement and the Security Documents; (iii) the Original Purchaser while it remains a Bondowner shall have consented in writing to such transaction, which consent shall not be unreasonably withheld; and (iv) the resulting, surviving or transferee entity shall have a net assets immediately following such transaction at least equal to or greater than that of such Borrower immediately prior to such transaction.
 
Section 6.12   Financial Statements .  The Borrowers shall maintain a standard and modern system of accounting in accordance with sound accounting practice, and furnish to the Original Purchaser such information respecting the business, assets and financial condition of such Borrowers as the Issuer may reasonably request and, without request furnish to the Original Purchaser the following financial statements on or prior to the dates indicated below:
 
 
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(a)      as soon as available, and in any event within 120 days after the filing thereof, the Borrowers shall provide the Original Purchaser a copy of the tax return for each fiscal year of the Borrower;
 
(b)      as soon as available, and in any event within 120 days after the end of each fiscal year, consolidated and consolidating financial statements for the Borrowers for each fiscal year, prepared in accordance with GAAP, and compiled by independent accountants acceptable to the Original Purchaser;
 
(c)      as soon as available, and in any event within 60 days after the end of each fiscal quarter, consolidated and consolidating financial statements for the Borrowers for each fiscal quarter, prepared in accordance with GAAP, all in reasonable detail and certified as true and correct, subject to review and normal year end adjustments, by the chief financial officer of Borrower; and
 
(d)      promptly upon learning of the occurrence of any of the following, written notice thereof to the Original Purchaser, describing the same and the steps being taken with respect thereto: (i) the occurrence of any Default, (ii) the institution of, or any materially adverse determination or development in, any material litigation, arbitration proceeding or governmental proceeding, (iii) the occurrence of a “reportable event” under, or the institution of steps by the Borrowers to withdraw from, or the institution of any steps to terminate, any Employer Plan as to which the Borrowers may have liability, (iv) the commencement of any dispute with a third party which might lead to the modification, transfer, revocation, suspension or termination of this Agreement or any Related Document, or (v) any event which would have a Material Adverse Effect.
 
Section 6.13   Environmental Compliance .  The Borrowers shall:
 
(a)      Maintain at all times all permits, licenses and other authorizations required under Environmental Laws, and comply in all material respects with all terms and conditions of the required permits, licenses and authorizations and all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in the Environmental Laws.
 
(b)      Notify the Issuer and the Original Purchaser promptly upon obtaining knowledge that (i) any Property previously or presently owned or operated is the subject of an environmental investigation by any Government Authority having jurisdiction over the enforcement of Environmental Laws, (ii) any Borrower or any of its respective Subsidiaries has been or may be named as a responsible party subject to Environmental Liability, or (iii) any Borrower obtains knowledge of any Hazardous Substance located on any Property except in compliance with all Requirements of Law.
 
(c)      At any reasonable time following reasonable notice and as often as may be reasonably desired after any Borrower becomes aware of an environmental problem, permit the Issuer and/or the Original Purchaser or an independent consultant selected by the Issuer and/or the Original Purchaser to conduct an environmental audit satisfactory to the Issuer and/or the Original Purchaser for the purpose of determining whether the Borrowers, each Subsidiary, any tenant, and their Property comply with Environmental Laws and whether there exists any condition or circumstance which may require a cleanup, removal or other remedial action by a Borrower, a Subsidiary or a tenant with respect to any Hazardous Substance.  The Borrowers and their respective
 
 
 
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Subsidiaries shall facilitate such environmental audit.  The Issuer and/or the Original Purchaser shall provide the Borrower, at the Borrowers’ request, with all reports and findings but the Borrowers may not rely on such environmental audit for any purpose.  Any such environmental audit of Property shall be at Borrowers’ expense at any time following an Event of Default or upon the occurrence of an event described in Section 6.13(b) or at any time the Property is the subject of an environmental investigation by a Government Authority having jurisdiction over the enforcement of Environmental Laws; provided , however , that the Issuer’s and/or the Original Purchaser’s environmental audit shall not be at the Borrowers’ expense if (i) a Government Authority or a firm or firms of geotechnical engineers and/or environmental consultants hired by the Borrowers and reasonably acceptable to the Issuer and/or the Original Purchaser shall undertake to make an environmental audit, and (ii) the Borrowers shall provide the Issuer and the Original Purchaser at the Borrowers’ expense with, and the Issuer and the Original Purchaser shall be entitled to rely on, all reports and findings of such Government Authority or geotechnical engineers as soon as such reports and findings are made available to the Borrower.
 
Notwithstanding the foregoing, nothing contained in this Bond Agreement, or in the Loan Documents, or in the enforcement of this Bond Agreement or the Loan Documents, shall constitute or be construed as granting or providing the right, power or capacity to the Issuer or the Original Purchaser to exercise (a) decision-making control of the Borrowers’, any Subsidiary’s or any tenant’s compliance with any Environmental Law, or (b) day-to-day decision making of the Borrower, any Subsidiary or any tenant with respect to (i) compliance with Environmental Laws or (ii) all or substantially all of the operational aspects of the Borrower, any Subsidiary or any tenant.
 
Section 6.14   Certain Financial Covenants The Borrowers shall observe the financial covenants contained in the Credit Agreement.
 
Notwithstanding any provision of ARTICLE X or any other provision of the Bond Agreement to the contrary, the provisions of this Section 6.14 may, so long as the Original Purchaser is the holder of record of all (100%) in principal amount of the Bonds then Outstanding, be amended and further amended from time to time to add, delete or modify any financial covenant set forth herein by a written instrument executed by the Borrowers and the Original Purchaser.  No prior notice to or consent of the Issuer or the Trustee shall be required to effect an amendment to this Section 6.14; however, the Borrowers shall file with the Trustee the written instrument, signed by the Borrowers and the Original Purchaser, within 30 days of the effective date of any such amendment.
 
Section 6.15   Operating Funds and Accounts.    The Borrowers shall maintain its primary operating account with the Original Purchaser and shall maintain all bank deposits and accounts, in accounts with either the Original Purchaser or the Participant.
 
Section 6.16   Inspection of Property and Records .  At any reasonable time following reasonable notice, as often as may be reasonably desired and at the Borrowers’ expense after an Event of Default which is continuing, each Borrower shall permit representatives of the Issuer, the Trustee, and the Original Purchaser to visit its respective Property, examine its respective books and records and discuss its respective affairs, finances and accounts with its members or officers and independent certified public accountants (who shall be instructed by such Borrower to make available to the Issuer, the Trustee, and the Original Purchaser or their agents the work papers of such accountants) and each Borrower shall facilitate such inspection and examination.
 
 
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Section 6.17   Comply With, Pay and Discharge All Notes, Mortgages, Deeds of Trust and Leases .  Each Borrower shall comply with, pay and discharge all existing notes, mortgages, deeds of trust, leases, indentures and any other contractual arrangements to which such Borrower or any Subsidiary is a party (including, without limitation, all Indebtedness) in accordance with the respective terms of such instruments so as to prevent any default thereunder.
 
Section 6.18   Appraisals .  If and to the extent required at any time of the Issuer and/or the Original Purchaser by any Government Authority or Requirements of Law, the Borrowers shall permit an independent appraiser selected by the Issuer and/or the Original Purchaser to conduct appraisals of the Property at any reasonable time following reasonable notice, at the Borrowers’ reasonable expense.  The Borrowers shall facilitate such appraisals and may obtain copies of, but may not rely, on such appraisals for any purpose.
 
Section 6.19   Negative Covenants .  During the term of this Bond Agreement, no Borrower or any of their respective Subsidiaries shall:
 
(a)      Issue, create, incur, assume or otherwise become liable with respect to (or agree to issue, create, incur, assume or otherwise become liable with respect to), or permit to remain outstanding, any Indebtedness except (i) Indebtedness of the Borrowers under this Bond Agreement; (ii) Indebtedness which has been subordinated to the Issuer in form and substance satisfactory to the Issuer and/or the Original Purchaser; (iii) current liabilities (other than for borrowed money) of a Borrower incurred in the ordinary course of business which are not more than 90 days overdue, unless being contested in good faith and with due diligence; (iv) Indebtedness secured by Permitted Liens (as hereafter defined); (v) Indebtedness disclosed on any Borrower’s most recent financial statements; and (vi) Indebtedness owed Original Purchaser.
 
(b)      Fail to comply with negative covenants as contained in the Credit Agreement.
 
(c)      Guarantee or otherwise in any way become or be responsible for obligations of any other Person, whether by an agreement to purchase the indebtedness of any other Person, or agreement for the furnishing of funds to any other Person through the purchase of goods, supplies or services (or by way of stock purchase, capital contribution advanced or loaned) for the purpose of paying or discharging the indebtedness of any Person, or otherwise, except for the endorsement of negotiable instruments by any Borrower or any Subsidiary for deposit or collection or similar transactions in the ordinary course of business.
 
(d)      (i) Except for sales of inventory in the ordinary course of business, in any fiscal year sell, lease, transfer or otherwise dispose of Property having an aggregate net book value in excess of $50,000, whether in one or in a series of transactions; (ii) consolidate or merge with or into any other Person (except as permitted by Section 6.11); (iii) directly or indirectly, sell or transfer any Property, real or personal, used or useful in its business, and thereafter lease such property or other property which it intends to use for substantially the same purposes; (iv) sell, issue or otherwise distribute any security, including any shares of, or the membership interest of, a Borrower; or (v) create or permit any Subsidiary to create a new Subsidiary.
 
(e)      Create or permit to be created or allow to exist any Lien upon or interest in any Property except Permitted Liens.  For purposes herein, Permitted Liens shall mean:  (i) Liens for
 
 
 
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taxes, assessments, or governmental charges, carriers’, warehousemen’s, repairmen’s, mechanics’, materialmen’s and other like Liens, which are either not delinquent or are being contested in good faith by appropriate proceedings which will prevent foreclosure of such Liens, and against which adequate cash reserves have been provided; (ii) easements, restrictions, minor title irregularities and similar matters which have no material adverse effect upon the ownership and use of the affected Property; (iii) Liens or deposits in connection with worker’s compensation, unemployment insurance, social security or other insurance or to secure customs duties, public or statutory obligations in lieu of surety, stay or appeal bonds, or to secure performance of contracts or bids, other than contracts for the payment of money borrowed, or deposits required by law as a condition to the transaction of business or other Liens or deposits of a like nature made in the ordinary course of business; (iv) Liens in favor of the Original Purchaser pursuant to the Related Documents (as defined in the Credit Agreement) and pursuant to the Bond Agreement and the Loan Documents; (v) Liens evidenced by conditional sales, purchase money mortgages or other title retention agreements on machinery and equipment (acquired in the ordinary course of business and otherwise permitted to be acquired hereunder) which are created at the time of the acquisition of such property solely for the purposes of securing the Indebtedness incurred to finance the cost of such property, provided no such Lien shall extend to any property other than the property so acquired and identifiable proceeds; and (vi) Liens described in the Credit Agreement.
 
(f)      Make or commit to make advances, loans, extensions of credit or capital contributions to, or purchases of any stock, bonds, notes, debentures or other securities of, or make any other investment in, any Person except:  (i) accounts, chattel paper, and notes receivable created by a Borrower in the ordinary course of business; (ii) advances in the ordinary course of business to suppliers, employees and officers of a Borrower and its respective Subsidiaries consistent with past practices in an aggregate amount at any time outstanding of not more than $25,000; (iii) investments in bank certificates of deposit (but only with FDIC-insured commercial banks having a combined capital and surplus in excess of $20,000,000), open market commercial paper maturing within one year having the highest rating of either Standard & Poor’s Ratings Services or Moody’s Investors Service, U.S. Treasury Bills subject to repurchase agreements and short-term obligations issued or guaranteed by the U.S. Government or any agency thereof; and (iv) investments in open-end diversified investment companies of recognized financial standing investing solely in short-term money market instruments consisting of securities issued or guaranteed by the United States government, its agencies or instrumentalities, time deposits and certificates of deposit issued by domestic banks or London branches of domestic banks, bankers acceptances, repurchase agreements, high grade commercial paper and the like; provided that for Subsections (i) through (iv), each such investment has a maturity date not later than 180 days after the date of purchase or making thereof and, except for advances under clause (ii), is pledged and delivered to the Issuer as additional security for the obligations hereunder.
 
(g)      (i) Terminate any Employee Plan so as to result in any material liability to PBGC; (ii) engage in any “prohibited transaction” (as defined in Section 4975 of the Code) involving any Employee Plan which would result in a material liability for an excise tax or civil penalty in connection therewith; or (iii) incur or suffer to exist any material “accumulated funding deficiency” (as defined in Section 302 of ERISA), whether or not waived, involving any condition, which presents a risk of incurring a material liability to PBGC by reason of termination of any such Employee Plan.
 
 
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(h)      Permit any transaction with any Affiliate, except on terms not less favorable to such Borrowers than would be usual and customary in similar transactions with Persons who are not Affiliates.
 
Section 6.20   Consent to Participation .  The Borrowers hereby acknowledge and consent to the sale by the Original Purchaser to the Participant of a participating interest in the Bonds and the Loan; however, nothing shall be implied by the giving of such consent that such consent was or is legally required and the Original Purchaser (and the Participant) may, from time to time and at any time, sell additional participating interests to third Persons, trade or repurchase such participating interests with each other or with third parties, or otherwise deal with such participating interests in such manner as either in its sole and exclusive discretion may determine, except as may otherwise be provided in any agreement between or among the Original Purchaser, the Participant or any other holder from time to time of a participating interest in the Bonds.  Notwithstanding the foregoing, unless there shall first be surrendered by the Original Purchaser a principal amount of Bonds to the Trusts and such principal amount of Bonds shall be reissued registered in the name of the Participant or any other holder of a participating interest in the Bonds, all in compliance with Section 2.15, neither the Participant nor any other holder of a participating interest in the Bonds shall be deemed a "Bondowner" for any purpose hereunder.  No holder of a participating interest in the Bonds shall be deemed a "Participant" for purposes of Section 6.15.
 
ARTICLE   VII
 
POWERS AND DUTIES OF TRUSTEE
 
Section 7.01   Acceptance of Trusts .  The Trustee hereby accepts the trusts imposed upon it by this Bond Agreement, and agrees to perform said trusts, but only upon and subject to the following express terms and conditions, and no implied covenants or obligations shall be read into this Bond Agreement against the Trustee:
 
(a)      The Trustee, prior to the occurrence of any Event of Default and after the curing of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth herein.  In case an Event of Default has occurred (which has not been cured) the Trustee shall exercise such of the rights and powers vested in it by this Bond Agreement, and use the same degree of care and skill in their exercise, as a reasonable and prudent person would exercise or use under the circumstances in the conduct of personal affairs.
 
(b)      The Trustee may execute any of the trusts or powers hereof and perform any of its duties by or through attorneys, agents or employees but shall be answerable for the conduct of the same in accordance with the standard specified above, and shall be entitled to act upon the opinion or advice of its Counsel concerning all matters of trust hereof and the duties hereunder, and may in all cases pay such reasonable compensation to all such attorneys, agents and employees as may reasonably be employed in connection with the trust hereof.  Such reasonable compensation for counsel shall be paid by the Borrower.  The Trustee may act upon an opinion of independent counsel and shall not be responsible for any loss or damage resulting from any action or nonaction by it taken or omitted to be taken in good faith in reliance upon such opinion of independent Counsel.
 
(c)      The Trustee shall not be responsible for any recital herein or in the Bonds (except in respect to the certificate of authentication of the Trustee endorsed on the Bonds) or for
 
 
 
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the validity of the execution by the Issuer of this Bond Agreement or of any supplements hereto or for the sufficiency of the security for the Bonds issued hereunder or intended to be secured hereby, and the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any covenants, conditions or agreements on the part of the Issuer or on the part of the Borrowers in connection with this Bond Agreement, except as hereinafter set forth; and the Trustee shall not be responsible or liable for any loss suffered in connection with any investment of funds made by it in accordance with Section 3.08.
 
(d)      The Trustee shall not be accountable for the use of any Bonds authenticated or delivered hereunder.  The Trustee may become a Bondowner with the same rights which it would have if not Trustee.  The Trustee may in good faith buy, sell, own and deal in any of the Bonds and may join in any action which any Bondowner may be entitled to take with like effect as if the Trustee were not a party to this Bond Agreement.
 
(e)      The Trustee shall be protected in acting upon any notice, request, consent, certificate, order, affidavit, letter, telegram or other paper or document believed by it to be genuine and correct and to have been signed or sent by the proper Person or Persons.  Any action taken by the Trustee pursuant to this Bond Agreement upon the request, authority or consent of any person who at the time of making such request or giving such authority or consent is the Bondowner of any Bond, shall be conclusive and binding upon all future Bondowners of the same Bond and upon Bonds issued in exchange therefor or in place thereof.
 
(f)      As to the existence or nonexistence of any fact or as to the sufficiency or validity of any instrument, paper or proceeding, the Trustee shall be entitled to rely upon a certificate signed on behalf of the Issuer by its Highest Elected Official or Clerk or such other person as may be designated for such purpose by resolution of the Issuer and attested to by the Clerk or such other person as may be designated for such purpose by resolution of the Issuer as sufficient evidence of the facts therein contained; and prior to the occurrence of a default of which the Trustee has been notified as provided in subsection (h) of this Section 7.01, or of which by said subsection it is deemed to have notice, shall also be at liberty to accept and rely upon a similar certificate to the effect that any particular dealing, transaction or action is necessary or expedient, but may at its discretion secure such further evidence deemed necessary or advisable, but shall in no case be bound to secure the same.  The Trustee may accept a certificate of the Issuer’s Clerk under the Issuer’s seal, if any, to the effect that a resolution in the form therein set forth has been adopted by the Issuer as conclusive evidence that such resolution has been duly adopted, and is in full force and effect.  The resolutions, orders, opinions, certificates and other instruments provided for herein may be accepted by the Trustee as conclusive evidence of the facts and conclusions stated therein and shall be full warrant, protection and authority to the Trustee for the withdrawal of cash and the taking or omitting of any other action hereunder.
 
(g)      The permissive right of the Trustee to do things enumerated herein shall not be construed as a duty unless failure to take such action would be a violation of the Trustee’s duty to mitigate damages, and the Trustee shall not be answerable for other than its gross negligence or willful default.
 
(h)      The Trustee shall not be presumed to have knowledge of any default or Event of Default hereunder except failure to pay the principal of, premium, if any, and interest on the Bonds, unless the Trustee shall be specifically notified in writing of such default by the
 
 
 
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Borrower, the Issuer, the Original Purchaser or the Bondowners of at least 25% in aggregate principal amount of Bonds Outstanding.
 
(i)      At any and all reasonable times the Trustee and its duly authorized agents, attorneys, experts, engineers, accountants and representatives shall have the right, but shall not be required, to inspect all books, papers and records of the Issuer pertaining to the Bonds and to take such memoranda from and in regard thereto as may be desired.
 
(j)      The Trustee shall not be required to give any bond or surety in respect of the execution of said trusts and powers or otherwise in respect of the premises.
 
(k)      Notwithstanding anything contained elsewhere herein, the Trustee shall have the right, but shall not be required, to demand, in respect of the authentication of any Bonds, the withdrawal of any cash, the release of any property, or any action whatsoever within the purview of this Bond Agreement, any showings, certificates, opinions, appraisals or other information, or corporate action or evidence thereof, in addition to that by the terms hereof required, as a condition of such action by the Trustee deemed desirable for the purpose of establishing the right of the Issuer to the authentication of any Bonds, the withdrawal of any cash, or the taking of any other action by the Trustee.
 
(l)      Before taking any action hereunder, the Trustee may require that satisfactory indemnity be furnished to it for the reimbursement of all expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from its gross negligence or willful default, by reason of any action so taken.
 
(m)      All moneys received by the Trustee shall, until used or applied or invested as herein provided, be held in trust in the manner and for the purposes for which they were received but need not be segregated from other funds except to the extent required by this Bond Agreement or law.  The Trustee shall not be under any liability for interest on any moneys received hereunder except such as may be agreed upon.
 
Section 7.02   Specific Duty of Trustee to File Continuation Statements .  The Trustee shall periodically file Uniform Commercial Code continuation statements as required to maintain and continue the perfection of any security interests granted by the Issuer as debtor to the Trustee as secured party hereunder or security interests granted by any Borrower as debtor to the Trustee as secured party under the Security Documents.  The Borrowers will reimburse the Trustee for any and all expenses incurred for filings.
 
Section 7.03   Notice to Bondowners if an Event of Default Occurs .  If a default occurs of which the Trustee is by Section 7.01(h) presumed to have knowledge, then the Trustee shall give written notice thereof by first-class mail to the Bondowners of all Bonds then Outstanding.
 
Section 7.04   Intervention by Trustee .  In any judicial proceedings to which the Issuer is a party and which in the opinion of the Trustee and its counsel has a substantial bearing on the interests of Bondowners of the Bonds, the Trustee may intervene on behalf of Bondowners and shall do so if requested in writing by the Bondowners of at least 25% in aggregate principal amount of all Bonds then Outstanding, provided that the Trustee shall first have been offered such
 
 
 
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reasonable indemnity against such liability as it may incur in or by reason of such proceedings.  The rights and obligations of the Trustee under this Section 7.04 are subject to the approval of a court of competent jurisdiction.
 
Section 7.05   Successor Trustee .  Any corporation or association into which the Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party, ipso facto, shall be and become a successor Trustee hereunder and vested with all of the title to the whole property or trust estate and all the trusts, powers, discretions, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed or conveyance on the part of any of the parties hereto, anything herein to the contrary notwithstanding.
 
Section 7.06   Resignation by Trustee .  The Trustee and any successor Trustee may at any time resign from the trusts hereby created by giving thirty (30) days’ prior written notice to the Issuer and the Borrower, and by first-class mail to each Bondowner.  Such resignation shall take effect, however, only upon the appointment of a successor Trustee (or a temporary Trustee as provided in Section 7.08) by the Bondowners or by the Issuer and the acceptance of such appointment.  If a successor Trustee has not been appointed by the end of the 30-day period, the Trustee may apply to a court of competent jurisdiction for the appointment of a successor Trustee, and the costs, expenses and reasonable attorneys’ fees which are incurred in connection with such a proceeding shall be paid by the Borrower.
 
Section 7.07   Removal of Trustee .  The Trustee may be removed at any time, by an instrument or concurrent instruments in writing delivered to the Trustee and to the Issuer, and signed by the Bondowners of a majority in aggregate principal amount of Bonds then Outstanding.
 
Section 7.08   Appointment of Successor Trustee by Bondowners; Temporary Trustee .  In case the Trustee hereunder shall resign or be removed, or be dissolved, or shall be in course of dissolution or liquidation, or otherwise become incapable of acting hereunder, or in case it shall be taken under the control of any public officer or officers, or of a receiver appointed by a court, a successor may be appointed by the Bondowners of a majority in aggregate principal amount of Bonds then Outstanding by an instrument of concurrent instruments in writing signed by such Bondowners, or by their attorneys-in-fact, duly authorized; provided, nevertheless, that in case of such vacancy the Issuer by an instrument executed and signed by the Issuer’s Highest Elected Official and attested to by its Clerk under its seal may appoint a temporary Trustee to fill such vacancy until a successor Trustee shall be appointed by the Bondowners in the manner above provided; and any such temporary Trustee so appointed by the Issuer shall immediately and without further act be superseded by the Trustee so appointed by such Bondowners.  Every such Trustee appointed pursuant to the provisions of this Section 7.08 shall be a trust company or bank organized and in good standing under the laws of the United States of America or any state of the United States of America having the power and any authority to assume the duties and trusts hereby created and having a reported capital, surplus and undivided profits of not less than $5,000,000 or assets under administration of not less than $100,000,000 if there be such an institution willing, qualified and able to accept the trust upon reasonable or customary terms.  If a successor Trustee has not been appointed and has not accepted such appointment within 30 days of the resignation or removal of the Trustee, the Trustee may apply to a court of competent jurisdiction for the appointment of a
 
 
 
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successor Trustee, and the costs, expenses and attorneys’ fees which are incurred in connection with such a proceeding shall be paid by the Borrowers as provided in Section 7.12.
 
Section 7.09   Concerning Any Successor Trustee .  Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to its predecessor and also to the Issuer and the Borrowers an instrument in writing accepting such appointment hereunder, and thereupon such successor, without any further act, deed or conveyance, shall become fully vested with all of the properties, rights, powers, trusts, duties and obligations of its predecessor; but such predecessor shall nevertheless, on the written request of the Issuer, or of its successor, execute and deliver an instrument transferring to such successor Trustee all the properties, rights, powers, and trusts of such predecessor hereunder; and every predecessor Trustee shall deliver all securities and moneys held by it as Trustee hereunder to its successor.  Should any instrument in writing from the Issuer be required by any successor Trustee for more fully and certainly vesting in such successor the properties, rights, powers and duties hereby vested or intended to be vested in the predecessor, any and all such instruments in writing, shall, on request, be executed, acknowledged and delivered by the Issuer.
 
Section 7.10   Acquisition of Conflicting Interests by Trustee .  If the Trustee has or shall acquire any conflicting interest, the Trustee shall, within 90 days after ascertaining that it has such conflicting interest, either eliminate the same or resign by giving notice in accordance with Section 7.06 to the Issuer, the Borrowers and Bondowners within such period, provided that such resignation shall become effective upon the appointment of a successor Trustee and such successor’s acceptance of such appointment, and the Issuer and the Trustee agree to take prompt steps to have a successor appointed in the manner herein provided.
 
The Trustee shall be deemed to have a conflicting interest hereunder if it has a “conflicting interest” within the meaning of Section 3.10(b)(1) to (9), inclusive, of the Trust Indenture Act of 1939, as amended, except that the Trustee shall not be deemed to have a conflicting interest solely by reason of its having for itself or as a banker become a purchaser, seller or pledgee of the Bonds, it being understood that the Trustee may so deal with Bonds with the same rights that it would have if it were not Trustee and without liability or accountability to the Issuer or Bondowners on account thereof.  Also, it may act as depositary for any purpose for any committee formed to protect the rights of Bondowners or effect or aid in any reorganization growing out of or involving the enforcement of the Bonds or this Bond Agreement whether or not any such committee shall represent the Bondowners of a majority in aggregate principal amount of the Bonds Outstanding hereunder.
 
In the event that the Trustee shall fail to comply with the provisions of this Section 7.10, the Trustee shall within 10 days after the expiration of such 90-day period, transmit notice of such failure to the Bondowners.
 
Any Bondowner who has been a bona fide Bondowner of a Bond or Bonds for at least six months may, on behalf of himself, herself or itself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor, if the Trustee fails, after written request therefor by such Bondowner, to comply with the provisions of this Section.
 
 
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Section 7.11   Requirement of a Corporate Trustee .  Nekoosa Port Edwards State Bank, Nekoosa, Wisconsin shall initially assume and perform the duties of Trustee; provided , however , that it shall remain Trustee only so long as it is the sole owner of the Bonds.  Immediately upon the sale or transfer of any of the Bonds to a third person, the Original Purchaser shall appoint a Successor Trustee, subject to approval by the Borrower, which approval shall not be unreasonably withheld, and the acceptance of such appointment by the Successor Trustee.  Such Successor Trustee shall meet the requirements of a Corporate Trustee set forth below.  There shall at all times be one or more Trustees hereunder.  One of the Trustees hereunder shall at all times be a corporate Trustee, and the corporate Trustee and any successor to the corporate Trustee, appointed as hereinbefore provided, shall be a corporation organized and doing business under the laws of the United States of America or any state or territory thereof, or of the District of Columbia, and shall be authorized under such laws to exercise corporate trust powers and be subject to supervision or examination by federal, state, territorial or District of Columbia authority and have a combined capital, surplus and undivided profits of not less than the $5,000,000, or assets under administration of not less than $100,000,000; provided , however , that the preceding combined capital, surplus and undivided profits test or assets under administration test shall not apply to the Initial Trustee hereunder.  If such corporate Trustee publishes reports of its condition at least annually, pursuant to law or to the requirements of any supervising or examining authority hereinbefore referred to, then for the purposes of this Section 7.11, the combined capital, surplus and undivided profits of the corporate Trustee shall be deemed its combined capital, surplus and undivided profits as the same is set forth in such corporate Trustee’s most recent report of condition so published.
 
Section 7.12   Trustee’s Fees .  The Borrowers have agreed herein to pay certain fees and expenses of the Trustee for acting as Trustee hereunder.  The Trustee shall not be entitled to any payment from the Issuer for fees or expenses of the Trustee, except to the extent payable from Pledged Revenues.  During the continuance of an Event of Default, the Trustee shall have a first lien on Pledged Revenues, for payment of its fees and expenses in accordance with this Bond Agreement, with a right of payment therefrom prior to payment of any principal, premium, or interest on the Bonds.  The Trustee shall not be entitled to any payments of fees or reimbursements of expenses which result from the gross negligence or willful default of the Trustee.
 
ARTICLE   VIII
 
BOND DEFAULTS AND REMEDIES
 
Section 8.01   Bond Defaults Defined .  If any of the following events occur, it is hereby defined as and declared to be and to constitute a “ Bond Default ”:
 
(a)      Failure of the Issuer to make payment of any interest on any Bond when and as that interest shall become due and payable;
 
(b)      Failure of the Issuer to make payment of the principal of or any premium on any Bond shall when and as that principal or premium shall become due and payable, whether at stated maturity, by redemption, pursuant to any mandatory sinking fund requirements, by acceleration or otherwise;
 
(c)      A “Loan Default” shall occur under Section 9.01; or
 
 
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(d)      The Borrowers shall fail to pay any Obligation (including, without limitation, the Promissory Note and the payments required by the Credit Agreement) when and as the same become due and payable, whether upon demand, at maturity, by acceleration or otherwise.
 
Section 8.02   Acceleration .  Upon the occurrence of a Bond Default set forth in Section 8.01 while the Original Purchaser holds any of the Bonds, unless waived in writing by the Original Purchaser, the Trustee shall, by notice in writing delivered to the Issuer and the Borrower, declare the principal of all Bonds then Outstanding and the accrued interest thereon immediately due and payable, and such principal and interest shall thereupon become and be immediately due and payable.  Upon the occurrence of a Bond Default set forth in Section 8.01 when the Original Purchaser no longer holds any of the Bonds, the Trustee may, and upon the written request of the Bondowners of not less than 25% in the aggregate principal amount of Bonds then Outstanding shall, by notice in writing delivered to the Issuer and the Borrower, declare the principal of all Bonds then Outstanding and the accrued interest thereon immediately due and payable, and such principal and interest shall thereupon become and be immediately due and payable.
 
Section 8.03   Remedies .  Upon the occurrence of a Bond Default, the Trustee, may, in addition to acceleration as provided in Section 8.02, pursue any available remedy by action at law or suit in equity to enforce the payment of the principal of, premium, if any, and interest on the Bonds.  In exercising the rights given the Trustee under this Article, the Trustee shall take such action as, in the judgment of the Trustee applying the standards described in Section 7.01, would best serve the interests of the Bondowners.
 
If any Bond Default shall have occurred, and if requested so to do by the Bondowners of at least 25% in aggregate principal amount of Bonds then Outstanding and if indemnified as provided in Section 7.01, the Trustee shall be obliged to exercise such one or more of the rights and powers conferred by this Article as the Trustee, being advised by counsel, shall deem most expedient in the interest of the Bondowners.
 
No remedy by the terms of this Bond Agreement conferred upon or reserved to the Trustee (or to the Bondowners) is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Bondowners hereunder or now or hereafter existing at law or in equity or by statute.
 
No delay or omission to exercise any right or power accruing upon any default or event of default shall impair any such right or power or shall be construed to be a waiver of any such default or event of default or acquiescence therein; and every such right and power may be exercised from time to time and as often as may be deemed reasonable or prudent.
 
No waiver of any default or Bond Default hereunder, whether by the Trustee pursuant to the provisions of Section 8.10 or by the Bondowners, shall extend to or shall affect any subsequent default or event of default or shall impair any rights or remedies consequent thereon.
 
Section 8.04   Right of Bondowners to Direct Proceedings .  Anything herein to the contrary notwithstanding, the Bondowners of a majority in aggregate principal amount of Bonds then Outstanding shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the time, method and place of conducting all proceedings to be taken in connection with the enforcement by the Trustee of the terms and
 
 
 
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conditions hereof, or for the appointment of a receiver or any other proceedings hereunder, provided that such direction shall not be otherwise than in accordance with the provisions of law and of this Bond Agreement.  The foregoing shall not prevent the Original Purchaser from enforcing its rights hereunder.
 
Section 8.05   Waiver of Certain Rights .  Upon the occurrence of a Bond Default, to the extent that such rights may then lawfully be waived, neither the Issuer nor anyone claiming through it or under it, shall set up, claim or seek to take advantage of any moratorium, stay, extension or redemption laws now or hereafter in force to prevent or hinder the enforcement of this Bond Agreement, but the Issuer, for itself and all who may claim through or under it hereby waives, to the extent that it lawfully may do so, the benefit of all such laws to which it may be entitled by law.
 
Section 8.06   Application of Moneys .  All moneys received by the Trustee pursuant to any right given or action taken under the provisions of this Article shall, after payment of the cost and expenses of the proceedings resulting in the collection of such moneys and of the expenses, liabilities and advances incurred or made by the Trustee or the Issuer in connection with the performance of its powers or duties under this Agreement (including reasonable fees and disbursements of its counsel), be deposited into the Bond Fund and all moneys held or deposited in the Bond Fund during the continuance of a Bond Default shall be applied as follows:
 
(a)      Unless the principal of all the Bonds has become or shall have been declared due and payable, all such moneys shall be applied:
 
First :  To the payment to the Persons entitled thereto of all installments of interest then due on the Bonds, in the order of the maturity of the installments of such interest including interest (to the extent permitted by law) on overdue installments of interest, and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the persons entitled thereto without any discrimination or privilege; and
 
Second :  To the payment to the Persons entitled thereto of the unpaid principal of any of the Bonds which shall have become due (other than Bonds called for redemption for the payment of which moneys are held pursuant to the provisions hereof), in the order of their due dates, with interest (to the extent permitted by law) on such Bonds from the respective dates upon which they became due and, if the amount available shall not be sufficient to pay in full Bonds due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal due on such date, to the persons entitled thereto without any discrimination or privilege.
 
Third :  To the payment to the Persons entitled thereto of the unpaid premium, if any on any of the Bonds which have been called for redemption, in the order of the redemption dates, with interest (to the extent permitted by law) on such premiums from the respective dates on which such premiums became due, and, if the amount available shall not be sufficient to pay in full the premiums due on any particular redemption date, together with such interest, then to the payment ratably, according to the premium due on such date, to the persons entitled thereto without any discrimination or privilege.
 
 
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(b)      If the principal of all the Bonds shall have become due or shall have been declared due and payable, all such moneys shall be applied first to the payment of the principal and interest then due and unpaid upon all of the Bonds, without preference or priority of principal over interest or of interest over principal, or of any installment of interest, or of any Bond over any other Bond, ratably, according to the amounts due respectively for principal and interest, to the persons entitled thereto without any discrimination or privilege, and secondly to the payment of the premium, if any, then due, ratably to the persons entitled thereto without any discrimination or privilege.
 
(c)      If the principal of all the Bonds shall have been declared due and payable, and if such declaration shall thereafter have been rescinded and annulled under the provisions of this Article then, subject to the provisions of paragraph  (b) of this Section in the event that the principal of all the Bonds shall later become due or be declared due and payable, the moneys shall be applied in accordance with the provisions of paragraph  (a) of this Section.
 
Whenever moneys are to be applied pursuant to the provisions of this Section 8.06, such moneys shall be applied at such times from time to time as the Trustee shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future.  Whenever the Trustee shall apply such funds, it shall fix the date (which shall be an Payment Date unless it shall deem another date more suitable) upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such dates shall cease to accrue.  The Trustee shall give such notice as it may deem appropriate of the deposit and shall not be required to make payment to the Bondowner of any unpaid Bond until such Bond shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid.
 
Section 8.07   Remedies Vested in Trustee .  All rights of action (including the right to file proof of claims) under this Bond Agreement or under any of the Bonds may be enforced by the Trustee without the possession of any of the Bonds or the production thereof in any trial or other proceedings relating thereto and any such suit or proceeding instituted by the Trustee shall be brought in its name as Trustee without the necessity of joining as plaintiffs or defendants any Bondowners appertaining thereto, and any recovery of judgment shall, subject to the provisions of Section 8.06, be for the equal and ratable benefit of the Bondowners of the Bonds Outstanding.
 
Section 8.08   Rights and Remedies of Bondowners .  No Bondowner, other than the Original Purchaser, shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of this Bond Agreement or for the execution of any trust thereof or for the appointment of a receiver or any other remedy hereunder, unless a default has occurred of which the Trustee has been notified as provided in Section 7.01(h), or of which by said subsection it is deemed to have notice, nor unless also such default shall have become a Bond Default and the Bondowners of at least a majority in aggregate principal amount of Bonds then Outstanding shall have made written request to the Trustee and shall have offered it reasonable opportunity either to proceed to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name nor unless also they have offered to the Trustee indemnity as provided in Section 7.01 nor unless also the Trustee shall thereafter fail or refuse to exercise the powers hereinbefore granted, or to institute such action, suit or proceeding in its own name; and such notification, request and offer of indemnity are hereby declared in every case at the option of the Trustee to be conditions
 
 
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precedent to the execution of the powers and trust of this Bond Agreement, and to any action or cause of action for the enforcement of this Bond Agreement, or for the appointment of a receiver or for any other remedy hereunder; it being understood and intended that no one or more Bondowners shall have any right in any manner whatsoever to affect, disturb or prejudice the security of this Bond Agreement by its, his or their action or to enforce any right hereunder except in the manner herein provided and that all proceedings at law or in equity shall be instituted, had and maintained in the manner herein provided and for the equal benefit of the Bondowners of all Bonds then Outstanding.  Nothing herein contained shall, however, affect or impair (a) the right of any Bondowner to enforce the payment of the principal of and interest on any Bond at and after the stated maturity thereof, or the obligation of the Issuer to pay the principal of, premium, if any, and interest on each of the Bonds issued hereunder to the respective Bondowners at the time, place, from the source and in the manner herein and in said Bonds expressed or (b) the right of the Original Purchaser to enforce its rights hereunder.
 
Section 8.09   Termination of Proceedings .  In case the Trustee shall have proceeded to enforce any right hereunder and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely, then and in every such case the Issuer, the Borrowers and the Trustee shall be restored to their former positions and rights hereunder and all rights, remedies and powers of the Trustee shall continue as if no such proceedings had been taken.
 
Section 8.10   Waivers of Bond Defaults .  The Trustee shall waive any Bond Default hereunder and its consequences and rescind any declaration of maturity of principal of and interest on the Bonds upon the written request of the Bondowners of a majority in aggregate principal amount of all of the Bonds then Outstanding; provided , however , that there shall not be waived without the consent of the Bondowners of all the Bonds Outstanding (i) any Bond Default in the payment of the principal of any outstanding Bonds at the date of maturity specified therein or at the date fixed for the redemption thereof, or (ii) any Bond Default in the payment when due of the interest on any such Bonds unless, prior to such waiver or rescission, all arrears of interest, with interest (to the extent permitted by law) on overdue installments of interest at the rate per annum provided in the Bonds, and/or all arrears of payments of principal, with interest (to the extent permitted by law) on overdue principal at the rate per annum provided in the Bonds, as the case may be, and all expenses of the Trustee in connection with such default shall have been paid or provided for; and in case of any such waiver or rescission, or in case any proceeding taken by the Trustee on account of any such default shall have been discontinued or abandoned or determined adversely, then and in every such case the Issuer, the Trustee and the Bondowners shall be restored to their former positions and rights hereunder respectively, but no such waiver or rescission shall extend to any subsequent or other default, or impair any right consequent thereon.
 
ARTICLE   IX
 
LOAN DEFAULTS AND REMEDIES
 
Section 9.01   Loan Defaults Defined .  If any of the following events occur, it is hereby defined as and declared to be and to constitute a “ Loan Default ”:
 
(a)      Default in the due and punctual payment of any installment of principal or any payment of interest or premium on the Loan or any Obligation (including, without limitation,
 
 
 
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the Note and the payments required by the Credit Agreement) or otherwise due hereunder when and as the same shall become due and payable, whether upon demand, at maturity, by acceleration or otherwise;
 
(b)      The Borrowers shall fail to observe or perform any of the covenants, agreements or conditions of the Borrowers contained in this Bond Agreement (including the occurrence of a Bond Default) or in the Security Documents or in any provision of the Credit Agreement;
 
(c)      Any representation or warranty made by the Borrowers herein or in any of the Security Documents or in any certificate, document or financial statement delivered to the Issuer shall prove to have been incorrect in any material adverse respect as of the time when made or given;
 
(d)      Any Borrower shall (i) become insolvent or take or fail to take any action which constitutes an admission of inability to pay its debts as they mature; (ii) make an assignment for the benefit of creditors; (iii) petition or apply to any tribunal for the appointment of a custodian, receiver or any trustee for such Borrower or a substantial part of its respective assets; (iv) suffer any such custodianship, receivership or trusteeship to continue undischarged for a period of thirty days or more; (v) commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; (vi) by any act or omission indicate its consent to, approval of or acquiescence in any such petition, application or proceeding or order for relief or the appointment of a custodian, receiver or any trustee for it or any substantial part of any of its properties; or (vii) adopt a plan of liquidation of its assets;
 
(e)      Any Person shall (i) petition or apply to any tribunal for the appointment of a custodian, receiver or any trustee for any Borrower or a substantial part of its assets which continues undischarged for a period of thirty days or more; or (ii) commence any proceeding against such Borrower under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, in which an order for relief is entered or which remains undismissed for a period of 30 days or more; or
 
(f)      A Bond Default shall occur under Section 8.01.
 
Section 9.02   Certain Notices to Borrower .  In the event that the Trustee fails to receive when due any payment of principal or interest by the Borrowers on the Loan, the Trustee shall promptly give written notice thereof by telegram or if telegraphic service is not available then by registered or certified mail, postage prepaid, or by messenger to the Borrowers specifying such failure.  Such notice, however, shall not be a condition precedent to the exercise of any remedy hereunder, and failure to give such notice shall not preclude such default from being a Loan Default.
 
Section 9.03   Acceleration Upon Certain Circumstances .  Upon the occurrence of a Loan Default, the Trustee may, by written notice to the Borrower, declare the Loan to be immediately due and payable and/or may pursue any available remedy by suit at law or in equity to insure or realize the payment of the principal of, premium, if any, and interest under this Bond Agreement.  In the event that the Trustee shall accelerate the Bonds pursuant to Section 8.02, the Trustee shall, by written notice to the Borrower, declare the entire outstanding principal balance of
 
 
 
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the Loan together with all interest accrued thereon to be due and payable, and such principal and interest shall thereupon become and be immediately due and payable.
 
Section 9.04   Remedies .  Whenever any Loan Default shall have happened, the Trustee may declare all Loan Repayments for the remainder of the term of this Bond Agreement (being an amount equal to that necessary to pay in full all Outstanding Bonds, assuming acceleration of the Bonds hereunder, and all other indebtedness hereunder) to be immediately due and payable by the Borrowers and may declare the entire outstanding principal balance of the Loan, together with all interest accrued thereon, to be due and payable, provided , however , that there may be no acceleration of the Loan unless there is an acceleration of the Bonds hereunder; and any acceleration of the Bonds hereunder shall result in an acceleration of the Loan.  Upon the occurrence of a Loan Default, the Trustee may also take whatever action at law or in equity may appear necessary or appropriate to collect the Loan Repayments then due and thereafter to become due or to enforce performance and observance of any obligation, agreement or covenant of the Borrowers hereunder.
 
Section 9.05   Disposition of Funds .  Any amounts collected pursuant to action taken under Section 9.03 and Section 9.04 shall be paid into the Bond Fund and applied in accordance with the provisions of Section 8.06.
 
Section 9.06   Manner of Exercise .  No remedy conferred upon or reserved to the Trustee or the Original Purchaser hereunder is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power occurring upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient.  In order to entitle the Trustee or the Original Purchaser to exercise any remedy reserved to it in this Article, it shall be necessary to give only such notice as may be herein expressly required.
 
Section 9.07   Attorneys’ Fees and Expenses .  In the event the Borrowers should default under any of the provisions hereof and the Issuer, the Original Purchaser or the Trustee should employ attorneys or incur other expenses (including the costs and expenses of the Issuer Attorney and/or Original Purchaser Attorney) for the collection of the Loan or the enforcement of performance of any obligation or agreement on the part of the Borrowers hereunder, the Borrowers shall pay to the Issuer, the Original Purchaser or the Trustee the reasonable fee of such attorneys and such other expenses so incurred.
 
Section 9.08   Effect of Waiver .  In the event any agreement contained herein should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach.
 
Section 9.09   Waiver of Stay or Extension Laws .  The Borrowers covenant (to the extent that they may lawfully do so) that they will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Bond Agreement; and the Borrowers (to the extent that they may lawfully do so) hereby expressly waive all benefit or advantage of any such law, and covenant that they will not hinder,
 
 
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delay or impede the execution of any power granted herein to the Issuer or the Trustee, but will permit the execution of every such power as though no such law had been enacted.
 
ARTICLE   X
 
AMENDMENTS
 
Section 10.01   Amendments Without Bondowners’ Consent .  The Issuer, the Original Purchaser, the Borrowers and the Trustee may, without the consent of or notice to the Bondowners, agree to any supplement, amendment, change or modification of this Bond Agreement and the Promissory Notes in connection with any change therein for any of the following purposes:
 
(a)      To add additional covenants of the Issuer or to surrender any right or power herein conferred upon the Issuer;
 
(b)      To add additional covenants of the Borrowers or to surrender any right or power therein conferred upon the Borrowers or to add additional security for the performance of their obligations;
 
(c)      For any purpose not inconsistent with the terms hereof or to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision contained herein, or to make such other provisions in regard to matters or questions arising hereunder which shall not be inconsistent with the provisions hereof and which, in the judgment of the Trustee, shall not materially adversely affect the interests of the Bondowners; and
 
(d)      To make such other provisions in regard to matters or questions arising thereunder which shall not be inconsistent with the provisions hereof and which, in the judgment of the Trustee, shall not materially adversely affect the interests of the Bondowners.
 
Section 10.02   Amendments With Bondowners’ Consent .  Except as provided above, no amendment to this Bond Agreement, the Promissory Note or the Security Documents may be entered into except when consented to by the Borrowers and approved by Requisite Consent of Bondowners, provided that no amendment shall be made that materially adversely affects the rights of some but less than all the outstanding Bonds without the Requisite Consent of Bondowners so affected; and provided further that unanimous written consent of the Bondowners shall be required for any amendment with respect to (i) the amount or due date of any principal or interest payment upon any Bonds or the Loan, (ii) the mandatory redemption provisions of any Bonds, and (iii) this ARTICLE X.
 
If at any time the Issuer shall request the Trustee to enter into any amendment for any of the purposes of this Section 10.02, the Trustee shall, upon being satisfactorily indemnified with respect to expenses, mail a copy of the notice by first-class mail to each Bondowner thirty (30) days prior to entering into any amendment.  Such notice shall briefly set forth the nature of the proposed amendment and shall state that copies thereof are on file at the Trustee’s Principal Office for inspection by all Bondowners.  If thereafter any such amendment shall have been consented to and approved as herein provided, no Bondowner shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of
 
 
 
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the execution thereof, or to enjoin or restrain the Trustee or the Issuer from executing the same or from taking any action pursuant to the provisions thereof.  Upon the execution of any such amendment as in this Section permitted and provided, this Bond Agreement shall be and be deemed to be modified and amended in accordance therewith.
 
Section 10.03   Consent of Borrower .  Anything herein to the contrary notwithstanding, no amendment, change or modification under this Article affecting the rights or obligations of the Borrowers shall be effective unless Borrowers shall have consented in writing thereto.
 
Section 10.04   Special Provisions Regarding Certain Amendments .   Notwithstanding any provision of this ARTICLE X or any other provision of this Bond Agreement to the contrary, the provisions of Section 2.05, including the redemption provisions set forth in Section 2.05(a) and of Section 6.14 may be amended as provided in those sections.
 
ARTICLE   XI
 
ASSIGNMENT
 
In consideration of the premises, the acceptance by the Trustee of the trusts hereby created, and the purchase and acceptance of delivery of the Bonds by the Original Purchaser, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and to secure the payment of the principal of, premium, if any, and interest on all Bonds at any time issued and outstanding hereunder according to their tenor and effect, and to secure the performance and observance by the Issuer of all the covenants contained in the Bonds and in this Bond Agreement, the Issuer does hereby convey, transfer, set over, pledge, assign, and grant a security interest in and confirm unto the Trustee, its successors and assigns forever, all and singular the properties, revenues and rights hereinafter described and the proceeds thereof (collectively called the “ Trust Estate ”), to wit:
 
(a)      All right, title and interest of the Issuer in, to and under this Bond Agreement and the right to receive revenues and payments from the Borrowers hereunder;
 
(b)      All right, title and interest of the Issuer in and to the Pledged Revenues;
 
(c)      All right, title and interest of the Issuer in and to the Promissory Note;
 
(d)      All right, title and interest of the Issuer in and to the Security Documents;
 
(e)      All right, title and interest of the Issuer in and to the Trust Funds (with the exception of the Rebate Credit Account) and the cash, securities and investments of which they are comprised; and
 
(f)      All property which by the express provisions hereof is required to be subjected to the lien hereof, and any additional property that may from time to time hereafter be made subject to the lien hereof by the Issuer or by anyone on its behalf;
 
IN TRUST, for the equal and ratable benefit and security of the Bondowners without preference, priority or distinction as to lien or otherwise of any particular Bond over any other Bond, except as otherwise expressly provided herein;
 
 
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PROVIDED, HOWEVER, that the Issuer reserves the right to enforce the Unassigned Rights in its own name and for its own account; and
 
PROVIDED, FURTHER, that if the Issuer shall pay, cause to be paid or provide for the payment of the principal of, premium, if any, and interest on the Bonds in accordance with Section 2.23, and if the Issuer shall promptly, faithfully and strictly keep, perform and observe all of its representations, covenants and agreements contained herein, then in such event this Bond Agreement and the rights hereby granted (excepting Bondowners’ rights theretofore vested) shall cease, terminate and be void, otherwise to remain in full force and effect upon the trusts and subject to the conditions hereinafter set forth.
 
All Bonds issued and secured hereunder are to be issued, authenticated and delivered, and all Trust Funds, revenues and income hereby pledged are to be dealt with and disposed of under and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes herein expressed, and the Issuer has agreed and covenanted, and does hereby agree and covenant, with the Trustee and with the respective Bondowners from time to time of the Bonds, as set forth herein.
 
ARTICLE   XII
 
GENERAL
 
Section 12.01   Notices .  Unless otherwise expressly provided herein, all notices, certificates or other communication hereunder shall be sufficiently given and shall be deemed given when hand delivered, sent via facsimile transmission with evidence of receipt or when mailed by first class mail, postage prepaid, or by e-mail addressed as follows:  (i) if to the Issuer, at the Issuer’s Address; (ii) if to the Borrower, at the Borrowers’ Address; (iii) if to the Trustee, at the Trustee’s Address; and (v) if to the Original Purchaser, at the Original Purchaser’s Address.
 
A duplicate copy of each notice, certificate or other communication given hereunder by either the Issuer or the Trustee shall also be concurrently given to the Borrowers at its Address.
 
Whenever the Trustee is required hereunder to give notice to Bondowners, it shall give such notice by first class mail to each person on the Bond Register whose Bond is affected thereby.
 
 
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Section 12.02   Consent of Bondowners .  Any consent, request, direction, approval, objection or other instrument required by this Bond Agreement to be signed and executed by the Bondowners may be in any number of concurrent writings of similar tenor and may be signed or executed by such Bondowners in person or by agent appointed in writing.  Proof of the execution of any such consent, request, direction, approval, objection or other instrument or of the writing appointing any such agent and of the ownership of Bonds, if made in the following manner, shall be sufficient for any of the purposes hereof, and shall be conclusive in favor of the Trustee with regard to any action taken under such request for other instrument, namely:  The fact and date of the execution by any person of any such writing may be proved by the certificate of any officer in any jurisdiction who by law had power to take acknowledgments within such jurisdiction that the person signing such writing acknowledged before him the execution thereof, or by an affidavit of any witness to such execution.
 
Section 12.03   Limitation of Rights .  With the exception of rights herein expressly conferred, nothing expressed or mentioned in or to be implied from this Bond Agreement or the Bonds is intended or shall be construed to give to any person other than the parties hereto, the Borrowers and the Bondowners any legal or equitable right, remedy or claim under or in respect to this Bond Agreement, or any covenants, conditions and provisions hereof, which are and are intended to be for the sole and exclusive benefit of the parties hereto, the Borrowers and the Bondowners as herein provided.
 
Section 12.04   Captions .  The captions or headings in this Bond Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions hereof.
 
Section 12.05   Execution Counterparts .  This Bond Agreement may be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
 
Section 12.06   Severability .  In the event any provision hereof shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision.
 
Section 12.07   Binding Effect .  This Bond Agreement shall inure to the benefit of and shall be binding upon the Issuer, the Original Purchaser and the Borrowers and its heirs, successors and assigns.
 
Section 12.08   Governing Law .  This Bond Agreement shall be governed by, and interpreted in accordance with, the laws of the State of Wisconsin.
 
ARTICLE   XIII
 
AGREEMENT TO PURCHASE BONDS AND FUND BORROWERS’ REQUISITIONS
 
Subject to the conditions set forth in this ARTICLE XIII, the Original Purchaser agrees to purchase the Bonds, and to fund Borrowers’ Requisitions as provided in Sections 3.01, 3.02, 4.01 and 4.02 of this Bond Agreement; provided , however , that the Original Purchaser shall be required to fund a Borrower's Requisition only if no Event of Default is continuing hereunder and if the
 
 
 
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Borrowers has submitted to the Original Purchaser for approval a Borrower's Requisition in the form set forth in Exhibit D attached hereto and if the Trustee will have a first priority perfected purchase money security interest in the assets purchased upon the funding of such Borrower’s Requisition.
 
In addition to the terms and conditions otherwise contained herein, the obligation of the Original Purchaser to purchase the Bonds is conditioned upon the Original Purchaser receiving each of the following items in form, detail and content satisfactory to the Original Purchaser:
 
Section 13.01   Pledges .  The Borrowers shall have provided to the Original Purchaser a certification signed by the President of the Borrowers to the effect that, as of the date of Closing, the Borrowers have in their possession signed pledge cards or letters or writings of similar import evidencing not less than $450,000 in outstanding unfunded pledges from donors, all of which pledges are unrestricted as to the use of the pledged monies.  Such certificate shall be accompanied by such evidence of the existence of such pledges as the Original Purchaser shall reasonably require.  It shall not be an Event of Default hereunder if any such Donor fails to honor all or any part of his, her or its pledge.
 
Section 13.02   Certain Related Documents .  This Bond Agreement, the Security Agreement, the Mortgage, the Disbursing Agreement, the Collateral Assignment of Construction Contracts, and all other certificates, resolutions, or other documents required or completed hereunder shall have been executed and provided to the Original Purchaser.
 
Section 13.03   Bond Documents . The execution and delivery of the Bond Documents and the issuance and sale of the Bonds.
 
Section 13.04   Closing Certificate .  Closing certificates from Borrowers in form and substance acceptable to the Original Purchaser.
 
Section 13.05   UCC Searches . A UCC report certified to by the Department of Financial Institutions of the State of Wisconsin indicating that the Borrowers’ Property is not subject to any security interest other than Permitted Liens.
 
Section 13.06   Insurance Certificates . Certificates of Borrowers’ insurance coverages, showing insurance protection as required by this Agreement and the Related Documents.
 
Section 13.07   Title Insurance .   Delivery to the Original Purchaser of commitments for mortgage title insurance issued by a title insurance company acceptable to the Original Purchaser under a current ALTA form:  (i) insuring that the Borrowers have a fee simple estate in the Project Real Property, subject to the Mortgage; (ii) insuring that the Mortgage is a valid paramount lien on the Project Real Property in an amount of $4,000,000, subject only to Permitted Liens; (iii) insuring against loss or damage incurred by reason of construction liens which are or may be prior to the lien of the Mortgage; (iv) excluding any exceptions for rights of parties in possession or matters which would be disclosed by surveys of the Project Real Property; and (v) containing gap and such other endorsements as the Original Purchaser may request.
 
Section 13.08   Survey .  [Reserved] .
 
 
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Section 13.09   Environmental Reports .  Receipt by the Original Purchaser of such environmental reports and site assessments with respect to the Project Real Property (including, without limitation, Phase I and other environmental inspections and soil tests) as the Original Purchaser may request, and receipt by the Original Purchaser of a completed environmental questionnaire with respect to the Project Real Property in such form as the Original Purchaser may request and satisfactory to the Original Purchaser in all respects.
 
Section 13.10   Counsel Opinion .  Receipt by the Original Purchaser, from Haferman & Ilten, Stevens Point, Wisconsin, counsel to the Borrower, of satisfactory opinions as to (a) the due authorization, execution and delivery of this Agreement; (b) the other matters referred to in Sections 6.01 and 6.02 and (c) such other matters relating to each Borrower and the validity and enforceability of this Agreement and the Related Documents as the Original Purchaser shall reasonably require; and the Original Purchaser shall have received from Whyte Hirschboeck Dudek S.C., Milwaukee, Wisconsin, bond counsel; (x) an approving opinion regarding the Bonds, including an opinion confirming the tax-exempt status of interest on the Bonds; and (y) an opinion that the Bonds are exempt from registration under the Securities Act of 1933, as amended.
 
Section 13.11   Real Estate Appraisals .  Receipt by the Original Purchaser of an as-built appraisal of the Project Real Property, prepared by an appraiser licensed in the State of Wisconsin selected by the Original Purchaser, which appraisal shall be addressed to the Original Purchaser, conform with applicable Requirements of Law as to form and content, be in form and substance satisfactory to the Original Purchaser, and reflect an appraised value of the Project Real Property equal to or more than $4,000,000 of which the Original Purchaser acknowledges receipt acceptable in form and content.
 
Section 13.12   Proceedings Satisfactory .  All proceedings taken in connection with the transactions contemplated by this Agreement, the applicable Related Documents and the Bond Documents, and all instruments, authorizations and other documents applicable thereto, shall be satisfactory in form and substance to the Original Purchaser and its counsel.
 
Section 13.13   Project Compliance .  Borrowers providing Original Purchaser evidence in form satisfactory to Original Purchaser the following: (i) proof the Project is in compliance with all applicable zoning laws, regulations and ordinances; (ii) a complete set of final working plans and specifications of the Project indicating conformance with all current state, federal, and local laws, codes, regulations, and ordinances (including handicap access regulations), and indicating a level of quality of the Project acceptable to Original Purchaser; and (iii) a complete cost breakdown of the Project on standard breakdown sheets, along with a copy of the major contracts and subcontracts for the Project.
 
Section 13.14   Supporting Documents .  Such additional supporting documents and materials as the Original Purchaser may request from the Borrower.
 

 
[SIGNATURE PAGE FOLLOWS]
 

 
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IN WITNESS WHEREOF, the Issuer, the Borrowers, the Trustee and the Original Purchaser have caused this Bond Agreement to be executed and delivered as of the date first above written.
 
 
 
 
 
[SEAL]
CITY OF WISCONSIN RAPIDS, WISCONSIN
 
 
By:        /s/ Mary Jo Carson                                     
Mary Jo Carson, Mayor
 
 
By:        /s/ Vernon J. Borth                                   
Vernon J. Borth, City Clerk
 
 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.
 
 
By:        /s/ Jamie L. Mancl                                 
Jamie L. Mancl, President
 
 
M & W FIBERGLASS, LLC
 
 
By:      /s/ Jamie L. Mancl                                   
          Jamie L. Mancl, Sole Member
 
 
/s/ Jamie L. Mancl                                          
JAMIE L. MANCL
 
 
/s/ Jennifer Mancl                                         
JENNIFER MANCL
 
 
NEKOOSA PORT EDWARDS STATE BANK , as Trustee
 
By:       /s/ Robb Nash Sigler                             
Robb Nash Sigler
 
 
NEKOOSA PORT EDWARDS STATE BANK,
as Original Purchaser
 
By:        /s/ Robb Nash Sigler                            
Robb Nash Sigler

 
[Signature Page to Bond Agreement]
$4,000,000
City of Wisconsin Rapids , Wisconsin
Industrial Development Revenue Bonds, Series 2007A, 2007B and 2007C
(Advanced Fiberglass Technologies Project)
 
 
 
 

 


 
EXHIBIT A
 

 
PROJECT DESCRIPTION
 
The project consists of the construction and equipping of an approximately 70,000 square-foot manufacturing facility located on a 22 acre parcel in the Rapids East Commerce Center, and having a street address of 4400 Commerce Drive, in the City of Wisconsin Rapids, Wisconsin (the “Project”) to be owned by M&W Fiberglass, LLC and leased to Advanced Fiberglass Technologies, Inc. for its use in connection with its business of manufacturing fiberglass products.   The initial operator of the Project will be Advanced Fiberglass Technologies, Inc.

 
A-1
 
 
 
 

 

EXHIBIT B
 

 
FORM OF BOND
 

 
B-1
 
 
 
 

 

EXHIBIT C
 

 
FORM OF PROMISSORY NOTE
 

 
C-1
 
 
 
 

 

EXHIBIT D
 

 
FORM OF BORROWERS’ REQUISITION
 

 

 

 
 
 
D-1
 
 
 


 
 


 
 
 
 
EXHIBIT 10.3
 
INDUSTRIAL DEVELOPMENT REVENUE BONDS,
PROMISSORY NOTE 2007A DATED FEBRUARY 28, 2007
 
 

 
 
 

 

THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE APPLICABLE STATE “BLUE SKY” LAWS AND REGULATIONS OF ANY STATE AND MAY NOT BE DISPOSED OF TO ANY PERSON OTHER THAN NEKOOSA PORT EDWARDS STATE BANK, NEKOOSA, WISCONSIN, UNLESS IT IS REGISTERED THEREUNDER OR THERE IS DELIVERED TO NEKOOSA PORT EDWARDS STATE BANK, NEKOOSA, WISCONSIN, OR ITS SUCCESSOR AS TRUSTEE UNDER A BOND AGREEMENT DATED EVEN HEREWITH, AN OPINION OF RECOGNIZED COUNSEL SATISFACTORY TO NEKOOSA PORT EDWARDS STATE BANK, NEKOOSA, WISCONSIN, OR ITS SUCCESSOR AS TRUSTEE, TO THE EFFECT THAT IT MAY BE RESOLD OR OTHERWISE DISPOSED OF PURSUANT TO EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
 
PROMISSORY NOTE
(Series 2007A)
 
$3,000,000
February 28, 2007
 
FOR VALUE RECEIVED, the undersigned, Advanced Fiberglass Technologies, Inc., M & W Fiberglass, LLC and Jamie L. Mancl and Jennifer Mancl (the “ Borrowers ,” which term shall be construed to include the heirs, personal representatives, and successors and assigns of the Borrowers), promise to pay to the order of the CITY OF WISCONSIN RAPIDS, WISCONSIN, a municipality existing under the laws of the State of Wisconsin (the “ Issuer ”), the principal sum of THREE MILLION DOLLARS ($3,000,000.00) (or so much as may have been requisitioned under that certain Bond Agreement (the “ Bond Agreement ”) dated February 28, 2007 by and among the Issuer, the Borrowers, Nekoosa Port Edwards State Bank, Nekoosa, Wisconsin, as Trustee, and Nekoosa Port Edwards State Bank, Nekoosa, Wisconsin, as Original Purchaser, which Bond Agreement secures the Bonds referenced above), payable in the same installments of principal and interest, due on the same dates and at the same interest rates and premiums, as are set forth for the Bonds in the Bond Agreement.
 
This Promissory Note constitutes the Promissory Note issued under the Bond Agreement, which Bond Agreement is hereby incorporated herein by this reference.  Reference is hereby made to the Bond Agreement for a statement of the terms and conditions on which the Loan evidenced hereby was made, for a description of the circumstances under which there shall be credits allowed against the installments of principal and interest on this Promissory Note, and for a description of the terms and conditions upon which this Promissory Note may be prepaid or its maturity accelerated.
 
ADVANCED FIBERGLASS TECHNOLOGIES, INC. ,
a Wisconsin corporation
 
 
By:   /s/ Jamie L. Mancl                                       
Jamie L. Mancl, President
 
 
M & W FIBERGLASS, LLC ,
a Wisconsin limited liability company
 
 
 
By:     /s/ Jamie L. Mancl                                  
Jamie L. Mancl, Sole Member
 
 
/s/ Jamie L. Mancl                                               
JAMIE L. MANCL
 
 
 
/s/ Jennifer Mancl                                             
JENNIFER MANCL

 
 

 

 
ASSIGNMENT
 
FOR VALUE RECEIVED, the undersigned, City of Wisconsin Rapids, Wisconsin, hereby assigns, without recourse, all its right, title and interest in and to the above Promissory Note to Nekoosa Port Edwards State Bank, Nekoosa, Wisconsin, or its successor or successors, as Trustee under the Bond Agreement referenced above.
 
Dated:  February 28, 2007.
 
 
CITY OF WISCONSIN RAPIDS, WISCONSIN
 
 
 
By:   /s/ Mary Jo Carson                                           
Mary Jo Carson, Mayor
 
 
By:    /s/ Vernon J. Borth                                        
Vernon J. Borth City Clerk

 
 
 
 
 



 
 


 
 
 
 
 
EXHIBIT 10.4
 
INDUSTRIAL DEVELOPMENT REVENUE BONDS,
PROMISSORY NOTE 2007B DATED FEBRUARY 28, 2007
 

 
 
 

 

THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE APPLICABLE STATE “BLUE SKY” LAWS AND REGULATIONS OF ANY STATE AND MAY NOT BE DISPOSED OF TO ANY PERSON OTHER THAN NEKOOSA PORT EDWARDS STATE BANK, NEKOOSA, WISCONSIN, UNLESS IT IS REGISTERED THEREUNDER OR THERE IS DELIVERED TO NEKOOSA PORT EDWARDS STATE BANK, NEKOOSA, WISCONSIN, OR ITS SUCCESSOR AS TRUSTEE UNDER A BOND AGREEMENT DATED EVEN HEREWITH, AN OPINION OF RECOGNIZED COUNSEL SATISFACTORY TO NEKOOSA PORT EDWARDS STATE BANK, NEKOOSA, WISCONSIN, OR ITS SUCCESSOR AS TRUSTEE, TO THE EFFECT THAT IT MAY BE RESOLD OR OTHERWISE DISPOSED OF PURSUANT TO EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
 
PROMISSORY NOTE
(Series 2007B)
 
$500,000
February 28, 2007
 
FOR VALUE RECEIVED, the undersigned, Advanced Fiberglass Technologies, Inc., M & W Fiberglass, LLC and Jamie L. Mancl and Jennifer Mancl (the “ Borrowers ,” which term shall be construed to include the heirs, personal representatives, and successors and assigns of the Borrowers), promise to pay to the order of the CITY OF WISCONSIN RAPIDS, WISCONSIN, a municipality existing under the laws of the State of Wisconsin (the “ Issuer ”), the principal sum of FIVE HUNDRED THOUSAND DOLLARS ($500,00.00) (or so much as may have been requisitioned under that certain Bond Agreement (the “ Bond Agreement ”) dated February 28, 2007 by and among the Issuer, the Borrowers, Nekoosa Port Edwards State Bank, Nekoosa, Wisconsin, as Trustee, and Nekoosa Port Edwards State Bank, Nekoosa, Wisconsin, as Original Purchaser, which Bond Agreement secures the Bonds referenced above), payable in the same installments of principal and interest, due on the same dates and at the same interest rates and premiums, as are set forth for the Bonds in the Bond Agreement.
 
This Promissory Note constitutes the Promissory Note issued under the Bond Agreement, which Bond Agreement is hereby incorporated herein by this reference.  Reference is hereby made to the Bond Agreement for a statement of the terms and conditions on which the Loan evidenced hereby was made, for a description of the circumstances under which there shall be credits allowed against the installments of principal and interest on this Promissory Note, and for a description of the terms and conditions upon which this Promissory Note may be prepaid or its maturity accelerated.
 
 
ADVANCED FIBERGLASS TECHNOLOGIES, INC. ,
a Wisconsin corporation
 
 
By:   /s/ Jamie L. Mancl                                                          
Jamie L. Mancl, President
 
 
M & W FIBERGLASS, LLC ,
a Wisconsin limited liability company
 
 
 
By:    /s/ Jamie L. Mancl                                       
Jamie L. Mancl, Sole Member
 
 
/s/ Jamie L. Mancl                                                                 
JAMIE L. MANCL
 
 
 
  /s/ Jennifer Mancl                                                
JENNIFER MANCL

 
 

 

 
ASSIGNMENT
 
FOR VALUE RECEIVED, the undersigned, City of Wisconsin Rapids, Wisconsin, hereby assigns, without recourse, all its right, title and interest in and to the above Promissory Note to Nekoosa Port Edwards State Bank, Nekoosa, Wisconsin, or its successor or successors, as Trustee under the Bond Agreement referenced above.
 
Dated:  February 28, 2007.
 
 
CITY OF WISCONSIN RAPIDS, WISCONSIN
 
 
 
By:    /s/ Mary Jo Carson                                          
Mary Jo Carson, Mayor
 
 
By:    /s/ Vernon J. Borth                                         
Vernon J. Borth City Clerk

 
 
 


 
 


 
 
 
 
 
 
EXHIBIT 10.5
 
INDUSTRIAL DEVELOPMENT REVENUE BONDS,
PROMISSORY NOTE 2007C DATED FEBRUARY 28, 2007
 

 
 
 

 

THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE APPLICABLE STATE “BLUE SKY” LAWS AND REGULATIONS OF ANY STATE AND MAY NOT BE DISPOSED OF TO ANY PERSON OTHER THAN NEKOOSA PORT EDWARDS STATE BANK, NEKOOSA, WISCONSIN, UNLESS IT IS REGISTERED THEREUNDER OR THERE IS DELIVERED TO NEKOOSA PORT EDWARDS STATE BANK, NEKOOSA, WISCONSIN, OR ITS SUCCESSOR AS TRUSTEE UNDER A BOND AGREEMENT DATED EVEN HEREWITH, AN OPINION OF RECOGNIZED COUNSEL SATISFACTORY TO NEKOOSA PORT EDWARDS STATE BANK, NEKOOSA, WISCONSIN, OR ITS SUCCESSOR AS TRUSTEE, TO THE EFFECT THAT IT MAY BE RESOLD OR OTHERWISE DISPOSED OF PURSUANT TO EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
 
PROMISSORY NOTE
(Series 2007C)
 
$500,000
February 28, 2007
 
FOR VALUE RECEIVED, the undersigned, Advanced Fiberglass Technologies, Inc., M & W Fiberglass, LLC and Jamie L. Mancl and Jennifer Mancl (the “ Borrowers ,” which term shall be construed to include the heirs, personal representatives, and successors and assigns of the Borrowers), promise to pay to the order of the CITY OF WISCONSIN RAPIDS, WISCONSIN, a municipality existing under the laws of the State of Wisconsin (the “ Issuer ”), the principal sum of FIVE HUNDRED THOUSAND DOLLARS ($500,000.00) (or so much as may have been requisitioned under that certain Bond Agreement (the “ Bond Agreement ”) dated February 28, 2007 by and among the Issuer, the Borrowers, Nekoosa Port Edwards State Bank, Nekoosa, Wisconsin, as Trustee, and Nekoosa Port Edwards State Bank, Nekoosa, Wisconsin, as Original Purchaser, which Bond Agreement secures the Bonds referenced above), payable in the same installments of principal and interest, due on the same dates and at the same interest rates and premiums, as are set forth for the Bonds in the Bond Agreement.
 
This Promissory Note constitutes the Promissory Note issued under the Bond Agreement, which Bond Agreement is hereby incorporated herein by this reference.  Reference is hereby made to the Bond Agreement for a statement of the terms and conditions on which the Loan evidenced hereby was made, for a description of the circumstances under which there shall be credits allowed against the installments of principal and interest on this Promissory Note, and for a description of the terms and conditions upon which this Promissory Note may be prepaid or its maturity accelerated.
 
 
ADVANCED FIBERGLASS TECHNOLOGIES, INC. ,
a Wisconsin corporation
 
 
By:   /s/ Jamie L. Mancl                                                       
Jamie L. Mancl, President
 
 
M & W FIBERGLASS, LLC ,
a Wisconsin limited liability company
 
 
 
By:    /s/ Jamie L. Mancl                                      
Jamie L. Mancl, Sole Member
 
 
   /s/ Jamie L. Mancl                                                      
JAMIE L. MANCL
 
 
 
  /s/ Jennifer Mancl                                             
JENNIFER MANCL
 
 

 
 
 

 

 
ASSIGNMENT
 
FOR VALUE RECEIVED, the undersigned, City of Wisconsin Rapids, Wisconsin, hereby assigns, without recourse, all its right, title and interest in and to the above Promissory Note to Nekoosa Port Edwards State Bank, Nekoosa, Wisconsin, or its successor or successors, as Trustee under the Bond Agreement referenced above.
 
Dated:  February 28, 2007.
 
 
CITY OF WISCONSIN RAPIDS, WISCONSIN
 
 
 
By:    /s/ Mary J. Carson                                          
Mary Jo Carson, Mayor
 
 
By:     /s/ Vernon J. Borth                                       
Vernon J. Borth City Clerk

 
 
 
 
 



 
 


 
 
 
 
 
 
 
 
EXHIBIT 10.6
 
INDUSTRIAL DEVELOPMENT REVENUE BONDS,
CREDIT AGREEMENT DATED FEBRUARY 28, 2007

 
 
 

 

CREDIT AGREEMENT
 
Dated as of February 28, 2007
 
By and Between
 

 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.,
 
 
 
M & W FIBERGLASS, LLC,
 
JAMIE L. MANCL AND JENNIFER MANCL
 
AS BORROWER
 
And
 
NEKOOSA PORT EDWARDS STATE BANK
 
Relating to:
 
$4,000,000
City of Wisconsin Rapids, Wisconsin
Industrial Development Revenue Bonds, Series 2007A, Series 2007B and Series 2007C
(Advanced Fiberglass Technologies Project)
 

 
 
 

 

TABLE OF CONTENTS
Page
RECITALS
1
   
AGREEMENT
1
   
ARTICLE I DEFINITIONS
1
 
1.01
Defined Terms
1
 
1.02
Other Terms
7
   
ARTICLE II PURCHASE OF THE BONDS; REPAYMENT OF THE LOAN
7
 
2.01
Purchase of the Bonds
7
 
2.02
Repayment of the Loan
7
 
2.03
Yield Protection
8
   
ARTICLE III REPRESENTATIONS AND WARRANTIES
8
 
3.01
Organization, Etc.
9
 
3.02
Authorization
9
 
3.03
No Conflicting Obligations
9
 
3.04
No Defaults
9
 
3.05
No Litigation
9
 
3.06
Financial Statements
9
 
3.07
Accuracy of Information
9
 
3.08
Taxes
10
 
3.09
Property
10
 
3.10
Licenses, Franchises
10
 
3.11
Places of Business; Collateral
10
 
3.12
Other Names
10
 
3.13
Federal Reserve Regulations
10
 
3.14
ERISA
11
 
3.15
Investment Company Act; Public Utility Holding Company Act
11
 
3.16
Environmental Laws
11
   
ARTICLE IV CONDITIONS PRECEDENT TO PURCHASE OF THE BONDS
11
 
4.01
Certain Related Documents
11
 
4.02
Bond Documents
11
 
4.03
Closing Certificate
11
 
4.04
UCC Searches
12
 
4.05
Insurance Certificates
12
 
4.06
Title Insurance
12
 
4.07
Survey.  [Reserved]
12
 
4.08
Environmental Reports
12
 
4.09
Counsel Opinion
12
 
4.10
Real Estate Appraisals
12
 
4.11
Proceedings Satisfactory
13
 
4.12
Project Compliance
13
 
4.13
Supporting Documents
13
 
i

   
ARTICLE IVA CONDITIONS TO BANK'S AGREEMENT TO PURCHASE BONDS AND TO FUND BORROWER'S REQUISITIONS
13
 
4A.1
Construction Contract
13
 
4A.3
Title Endorsements
13
   
ARTICLE V AFFIRMATIVE COVENANTS
13
 
5.01
Existence; Compliance With Laws; Maintenance of Business; Taxes
13
 
5.02
Maintenance of Property; Insurance
14
 
5.03
Financial Statements
14
 
5.04
Inspection of Property and Records/Bank Audits
15
 
5.05
Use of Proceeds
16
 
5.06
Bank Accounts
16
 
5.07
Compliance With Other Agreements
16
 
5.08
Compliance With Laws
16
 
5.09
Payment of Fees and Costs
17
 
5.10
Project Disbursements
17
 
5.11
No Liens; Plans; Covenants, Conditions and Restrictions
17
 
5.12
Project Lease
17
 
5.13
Key-Person Life Insurance
17
 
5.14
Minimum Tangible Net Worth
18
 
5.15
Debt Service Coverage Ratio
18
 
5.16
Total Indebtedness to Tangible Net Worth Ratio
18
 
5.17
Annual Resting of Line of Credit
 
18
 
5.18
Mortgage on After-Acquired Real Estate
18
   
ARTICLE VI NEGATIVE COVENANTS
18
 
6.01
Sale of Assets, Consolidation, Merger, Acquisitions, Etc.
18
 
6.02
Indebtedness
19
 
6.03
Liens
19
 
6.04
Guaranty
19
 
6.05
Loans, Investments
19
 
6.06
Compliance with ERISA
19
 
6.07
Restricted Payments
19
 
6.08
Project Lease – No Modification
20
 
6.09
Salaries
20
 
6.10
Change In Control
20
   
ARTICLE VII EVENTS OF DEFAULT
20
 
7.01
Events of Default Defined
20
 
7.02
Remedies Upon Event of Default
21
   
ARTICLE VIII MISCELLANEOUS
22
 
8.01
Indemnity
22
 
8.02
Assignability; Successors
22
 
8.03
Survival
22
 
8.04
Counterparts; Headings
22
 
8.05
Entire Agreement; Amendments
22
 
 
ii

 
 
8.06
Notices
22
 
8.07
No Waiver
24
 
8.08
Severability
24
 
8.09
Further Assurances
24
 
8.10
Conflicts and Ambiguities
24
 
8.11
Governing Law
24
 
8.12
Consent to Jurisdiction
25
 
8.13
Fees and Expenses
25
 
8.14
Assignments; Participations
26
 
8.15
WAIVER OF JURY TRIAL
26
         
         
SCHEDULE 1.01(a) - Project Real Property
 
SCHEDULE 3.11 - Places of Business/Locations of Collateral

 
iii

 

CREDIT AGREEMENT
 
THIS CREDIT AGREEMENT, dated February 28, 2007 (this “ Agreement ”), is made by and between ADVANCED FIBERGLASS TECHNOLOGIES, INC., a Wisconsin corporation (the “ Corporation ”), M & W FIBERGLASS, LLC, a Wisconsin limited liability company (the “ LLC ”), JAMIE L. MANCL, an individual resident of the State of Wisconsin, and JENNIFER MANCL, an individual resident of the State of Wisconsin (Jamie L. Mancl and Jennifer Mancl being referred to herein as the “ Individual Borrowers ”) (as used herein the term “ Borrower ” shall mean, the Corporation, the LLC and the Individual Borrowers, individually or collectively, as the context requires), and NEKOOSA PORT EDWARDS STATE BANK, Nekoosa, Wisconsin, as lender and as agent for the financial institutions from time to time parties hereto (the “ Bank ” or the “ Original Purchaser ”).
 
 
RECITALS
 
A.           The City of Wisconsin Rapids, Wisconsin (the “ Issuer ”), will issue its Industrial Development Revenue Bonds, Series 2007A, 2007B and 2007C (Advanced Fiberglass Technologies Project) in the aggregate principal amount of Four Million Dollars ($4,000,000) (the “ Bonds ”), pursuant to a Bond Agreement dated as of February 28, 2007 (the “ Bond Agreement ”), by and among the Issuer, the Borrower, Nekoosa Port Edwards State Bank, as trustee (the “ Trustee ”) and the Original Purchaser (the “ Bond Agreement ”).
 
B.           The proceeds derived from the issuance of the Bonds will be loaned to the Borrowers pursuant to the Bond Agreement, and used for (i) the construction of an approximately 70,000 square foot manufacturing facility to be located at 4400 Commerce Drive in the City of Wisconsin Rapids, Wisconsin (the “ Facility ”) to be owned by the LLC and leased to the Corporation and use in connection with the Corporation’s manufacturing business; and (ii) the acquisition and installation of equipment at the Facility (collectively (i) and (ii) are referred to herein as the “ Project ”).
 
C.           To provide the funds to be loaned to the Borrowers for payment of the costs of the Project, the Issuer has contracted for the sale of the Bonds to the Bank, and the Bank has agreed to purchase such Bonds in reliance on Borrowers’ agreeing to the terms and conditions set forth herein.
 
 
AGREEMENT
 
NOW, THEREFORE in consideration of the premises and the mutual agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
 
 
ARTICLE I
 
 
DEFINITIONS
 
1.01      Defined Terms .  As used herein, the following terms shall have the following meanings:
 

Agreement ” shall mean this Credit Agreement, as amended, restated, supplemented, modified or extended from time to time.
 
Appraised Value ” shall have the meaning set forth in Section 4.10.
 
Bank ” shall mean Nekoosa Port Edwards State Bank, a Wisconsin banking corporation, and its successors and assigns.
 
Bond Agreement ” shall mean the Bond Agreement dated as of February 28, 2007, by and among the Issuer, the Trustee, the Borrower and the Bank pursuant to which the Bonds shall be issued.
 
Bond Documents ” shall mean the Bonds, the Bond Agreement, the Promissory Note and all instruments, and other agreements executed by the Borrower in connection with the Bonds.
 
Bond Proceeds ” the proceeds of the sale of the Bonds such amount not to exceed $4,000,000 as may be advanced by the Original Purchaser under the Bond Agreement.
 
Bond Rate ” shall mean the then-applicable interest rate on the Bonds.
 
Bond Year ” shall mean, commencing with the Closing Date, each year ending on February 28 or February 29 (as applicable).
 
Bonds ” shall mean the Issuer’s Industrial Development Revenue Bonds, Series 2007A, Series 2007B and Series 2007C (Advanced Fiberglass Technologies Project) issued on the Closing Date, in the aggregate principal amount of Four Million Dollars ($4,000,000).
 
Borrower ” shall mean individually or collectively, as the context requires, the Corporation, the LLC, and the Individual Borrowers.
 
Business Day ” shall mean a day other than a Saturday, Sunday or other day on which banks are required or authorized to remain closed in the city in which the Bank’s Principal Office is located.
 
Closing Date ” shall mean February 28, 2007.
 
Code ” shall mean the Internal Revenue Code of 1986, as amended and recodified from time to time.
 
Collateral ” shall mean all of the rights, interest and Property of Borrower granted to the Bank as collateral hereunder or to the Trustee as collateral under the Bond Documents and under the Related Documents, and all other rights, interests and Property from time to time granted to the Bank as collateral for the payment and performance of the Obligations.
 
Collateral Assignment of Construction Contracts ” shall mean the Collateral Assignment of Construction Contracts dated February 28, 2007 by Borrower in favor of the Trustee and the Bank, as amended, restated, supplemented, modified or extended from time to time.
 
2

Collateral Assignment of Life Insurance ” shall mean the Collateral Assignment of Life Insurance dated February 28, 2007 by Borrower in favor of the Trustee and the Bank, as amended, restated, supplemented, modified or extended from time to time.
 
Corporation ” shall mean Advanced Fiberglass Technologies, Inc., a Wisconsin corporation.
 
Debt Service Coverage Ratio ” of any entity or entities on any date shall mean the ratio of (i) EBITDAR for the 12-month period ending on the measurement date to (ii) interest expenses plus principal payments coming due during the 12-month period beginning on the day after the measurement date.
 
Default ” shall mean an event which with the giving of notice or the passage of time or both would constitute an Event of Default.
 
Default Rate ” shall mean a rate equal to the Bond Rate plus 3%, per annum.
 
Disbursing Agreement ” shall mean the Disbursing Agreement dated as of February 28, 2007, among the Borrower, the Bank, the Trustee and the Title Company, as amended, restated, extended, supplemented or otherwise modified from time to time.
 
EBITDAR ” means earnings before interest, taxes, depreciation, amortization and rent expense.
 
Employer Plan ” shall mean any pension or welfare benefit plan of Borrower.
 
Environmental Law” or “Environmental Laws ” shall mean any local, state or federal law or other statute, law, ordinance, rule, code, regulation, decree or order governing, regulating or imposing liability or standards of conduct concerning the use, treatment, generation, storage, disposal or other handling or release of any hazardous substance, including without limitation, any pollutant, contaminant, waste or toxic or hazardous chemicals, wastes or substances, including, without limitation, asbestos, urea formaldehyde insulation, petroleum, PCBs, air pollutants, water pollutants, and other substances defined as hazardous substances or toxic substances in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9061 et seq., Hazardous Materials Transportation Act, 49 U.S.C. § 1802, the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq., the Toxic Substance Control Act of 1976, as amended, 15 U.S.C. § 2601 et seq., the Solid Waste Disposal Act, 42 U.S.C. § 3251 et seq., the Clean Air Act, 42 U.S.C. § 1857 et seq., the Clean Water Act, 33 U.S.C. § 1251 et seq., Chapters 254, 281, 283, 285, 287, 289, 291, 292, 293, 295 and 299 of the Wisconsin Statutes, or any other statute, rule, regulation or order of any Government Authority having jurisdiction over the control of such wastes or substances, including without limitation the United States Environmental Protection Agency, the United States Nuclear Regulatory Commission, and the State of Wisconsin.
 
Event of Default ” shall have the meaning assigned in Section 7.01 hereof.
 
3

ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended, and any successor statute, together with the regulations and published interpretations thereunder, in each case as in effect from time to time.
 
GAAP ” shall mean those generally accepted accounting principles and practices which are recognized as such by the American Institute of Certified Public Accountants acting through appropriate boards or committees thereof and which are consistently applied for all periods so as to properly reflect the financial condition, results of operations and cash flows of the Borrower.
 
Government Authority ” shall mean any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled through stock or capital ownership or otherwise, by any of the foregoing.
 
Guarantor ” shall mean Fiberglass Piping & Fitting Company, a Wisconsin corporation.
 
Guaranty ” shall mean that certain Guaranty dated as of February 28, 2007 given by Guarantor in favor of the Trustee and the Bank.
 
Indebtedness ” shall mean all liabilities or obligations of Borrower, whether primary or secondary or absolute or contingent or secured or unsecured:  (a) for borrowed money or for the deferred purchase price of property or services (excluding trade obligations incurred in the ordinary course of business, which are not the result of any borrowing); (b) as lessee under leases that have been or should be capitalized according to GAAP consistently applied; (c) evidenced by notes, bonds, debentures or similar obligations; (d) under any guaranty or endorsement (other than in connection with the deposit and collection of checks in the ordinary course of business), and other contingent obligations to purchase, provide funds for payment, supply funds to invest in any Person, or otherwise assure a creditor against loss; or (e) secured by any Liens on assets of Borrower, whether or not the obligations secured have been assumed by Borrower.
 
Individual Borrowers ” shall mean Jamie Mancl and Jennifer Mancl, each an individual resident of the State of Wisconsin.
 
Interest Payment Date ” shall mean each date on which a payment of interest is due on the Bonds pursuant to Section 2.02 of the Bond Agreement.
 
Issuer ” shall mean the City of Wisconsin Rapids, a political subdivision of the State of Wisconsin.
 
Lien” or “Liens ” shall mean any mortgage, pledge, assignment, deposit, encumbrance, lien (statutory or other), deed of trust, security interest, or security agreement of kind or nature whatsoever including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the UCC or comparable law of any jurisdiction.
 
LLC ” shall mean M & W Fiberglass, LLC, a Wisconsin limited liability company.
 
Loan ” shall mean the loan by the Issuer to the Borrower of the Bond Proceeds.
 
4

Material Adverse Effect ” shall mean (a) an Event of Default, (b) a material adverse change in the business, property, prospects, operations or condition (financial or otherwise) of the Borrower, (c) the termination of any material agreement to which the Borrower is a party which has a material adverse effect on the operations or condition of the Borrower, (d) any material impairment of the right to carry on the business as now or proposed to be conducted by the Borrower, or (e) any material impairment of the ability of the Borrower to perform the Obligations under this Agreement or the Related Documents. A Material Adverse Effect shall be deemed to have occurred if the cumulative effect of an individual event and all other then existing events would result in a Material Adverse Effect.
 
 “ Mortgage ” shall mean that certain Construction Mortgage and Assignment of Leases and Rents dated as of February 28, 2007 and executed pursuant to the requirements hereof by Borrower in favor of the Trustee and the Bank which, among other things, grants to the Trustee and the Bank a mortgage on the Project Real Property, as amended, restated, supplemented, modified, or extended from time to time.
 
Net Income ” shall mean for any period, the net earnings of a Person as determined according to GAAP consistently applied, excluding the effect of (a) gains from a write up of assets, (b) gains from the acquisition of any securities, (c) gains resulting from the sale of any investments or capital assets, (d) amortization of any deferred credit arising from the acquisition of any Person, and (e) proceeds of any life insurance payable to such Person.
 
Obligations ” shall mean the obligation to make payments on the Promissory Note, and all mandatory prepayments, all costs, fees and expenses, all liabilities of Borrower under the Bond Documents, all liabilities of Borrower to the Bank, and all other Indebtedness of Borrower to the Bank, whether or not evidenced by this Agreement, including, without limitation, all liabilities under interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, and all other agreements designed to protect against fluctuations in interest rates or currency exchange rates.
 
Outstanding Bonds ” shall mean, at any date, the aggregate principal amount of the Bonds on such date.
 
PBGC ” shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA.
 
Participants ” shall have the meaning in Section 8.14.
 
Payment Date ” shall mean monthly on the 28 th day of each month commencing March 28, 2007.
 
Permitted Liens ” shall mean, as to any Person: (a) Liens for taxes, assessments, or governmental charges, carriers’, warehousemen’s, repairmen’s, mechanics’, materialmen’s and other like Liens created by law, which are either not delinquent or are being contested in good faith by appropriate proceedings which will prevent foreclosure of such Liens, and against which adequate cash reserves have been provided; (b) easements, restrictions, minor title irregularities and similar matters which have no material adverse effect upon the ownership and use of the affected Property; (c) Liens or deposits in connection with worker’s compensation,
 
5

 
unemployment insurance, social security or other insurance or to secure customs duties, public or statutory obligations in lieu of surety, stay or appeal bonds, or to secure performance of contracts or bids, other than contracts for the payment of money borrowed, or deposits required by law as a condition to the transaction of business or other Liens or deposits of a like nature made in the ordinary course of business; (d) Liens in favor of the Bank; and (e) Liens created by sellers of goods sold to such Person on open account, which Liens attach solely to the goods sold and secure solely the purchase price of said goods during the period during which said goods are in the possession of such Person on a trial or “approval” basis and before which the purchase price for said goods becomes due and payable.
 
Person ” shall mean an individual, partnership, corporation, firm, enterprise, business trust, joint stock company, trust, limited liability company, limited liability partnership unincorporated association, joint venture, Government Authority or other entity of whatever nature.
 
Project ” shall have the meaning assigned in Recital B.
 
Project Lease ” shall mean that certain Lease Agreement executed pursuant to the requirements hereof by and between the LLC, as lessor, and the Corporation, as lessee, pursuant to which Borrower leases the Project Real Estate to the Corporation, as amended, restated, extended, supplemented or otherwise modified from time to time.
 
Project Real Property ” shall mean the real property (including improvements and accessions thereto) described on Schedule 1.01(a) attached hereto.
 
Property ” shall mean any interest of a Person in property or assets, whether real, personal, mixed, tangible or intangible, wherever located, and whether now owned or subsequently acquired or arising and in the products, proceeds, additions and accessions thereof or thereto.
 
Promissory Note ” shall mean the Promissory Notes dated as of February 28, 2007 in the principal amounts of $3,000,000 (the “ Series A Note ”), $500,000 (the “ Series B Note ”), and $500,000 (the “ Series C Note ”), made by Borrower in favor of the Issuer and assigned to the Bank, as original purchaser of the Bonds.
 
Related Documents ” shall mean this Agreement, the Disbursing Agreement, the Mortgage, the Security Agreement, the Collateral Assignment of Construction Contracts, the Collateral Assignment of Life Insurance and all other certificates, resolutions, or other documents required or contemplated hereunder.
 
Requirements of Law ” shall mean, as to any matter, Property or Person, the articles of incorporation or organization and bylaws or operating agreement or other organizational or governing documents of such Person, and any law (including, without limitation, any zoning and Environmental Law), ordinance, treaty, rule, regulation, order, decree, determination or other requirement having the force of law relating to such matter or Person and, where applicable, any interpretation thereof by any Government Authority.
 
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Restricted Payments ” shall mean, as to any Person, (a) dividends, distributions, or other payments by such Person based upon an ownership interest in said entity, or (b) purchases, redemptions or other acquisitions, direct or indirect, by such Person of an ownership interest in said entity, whether now or hereafter outstanding.
 
Security Agreement ” shall mean the Security Agreement dated February 28, 2007, among the Borrower, the Trustee and the Bank, all as amended, restated, supplemented, extended or otherwise modified from time to time.
 
Subsidiary ” shall mean, as to any Person, a corporation of which shares of stock having voting power (other than stock having such power only by reason of the happening of a contingency that has not occurred) sufficient to elect a majority of the board of directors or other managers of such corporation are at the time owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person.
 
Tangible Net Worth ” shall mean (1) the total of all of Corporation’s assets, excluding any noncompetition agreements, capitalized acquisition costs, goodwill and other intangibles, minus (2) the aggregate of all Corporation’s liabilities and reserves of every kind and character, all determined in accordance with generally accepted accounting principles consistent with those followed in preparation of the financial statements described in Section 5.03 hereof.
 
Title Company ” shall mean Goetz Abstract & Title, Inc., as agent for Chicago Title Insurance Company, 132 1 st Street North, Wisconsin Rapids, WI  54494, and its successors and assigns.
 
Trustee ” shall mean any trustee under the Bond Agreement from time to time, initially Nekoosa Port Edwards State Bank.
 
UCC ” shall mean the Uniform Commercial Code of the State of Wisconsin, as amended from time to time.
 
1.02   Other Terms .  Any capitalized terms used herein which are not defined shall have the meaning given such terms in the Bond Agreement.  Terms defined in other Sections of this Agreement shall have the meanings set forth therein.
 
 
ARTICLE II
PURCHASE OF THE BONDS; REPAYMENT OF THE LOAN
 
2.01   Purchase of the Bonds .  On the Closing Date, the Issuer will issue the Bonds and lend the Loan to the Borrower and the Borrower will borrow the Loan from the Issuer, upon the terms and conditions set forth in the Bond Documents the amount (not to exceed) $4,000,000 of Bond Proceeds and cause such Bond Proceeds to be credited to the Project Fund for disbursement by the Trustee in accordance with Sections 3.01 and 4.02 of the Bond Agreement.  The Loan shall be evidenced by the Promissory Note.  The outstanding principal amount of the Loan shall at all times be equal to the principal amount of the Outstanding Bonds.
 
2.02   Repayment of the Loan .  The Borrower will pay to the Trustee at its Principal Office for the account of the Issuer, and for deposit in the Bond Fund, in immediately available
 
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funds on the last Business Day of each month the exact amount of interest and principal payable on each Payment Date in accordance with the Promissory Note and those provisions of Article IV of the Bond Agreement.  This section shall be construed so that the Borrower’s obligation, pursuant to this section, shall never be more than to have on deposit in the Bond Fund on any Payment Date the exact amount of principal and interest due on the Bonds on that Payment Date (except for the amount of additional payments required by Section 4.07 of the Bond Agreement, amounts necessary to provide for the mandatory redemption of Bonds at the time and in the manner provided in the Bond Agreement, including upon acceleration of the Loan pursuant to Section 9.03 of the Bond Agreement).  In the event that the Borrower should fail to make any of the payments required in this subsection, the item so in default shall continue as an obligation of the Borrower until the amount in default shall have been fully paid, and the Borrower agrees to pay such amount with interest thereon (including, to the extent permitted by law, interest on the overdue installments of interest) at the Default Rate.
 
2.03   Yield Protection .  If, after the Closing Date, the adoption of or any change in any Requirement of Law or the compliance of the Bank therewith:
 
(a)   subjects the Bank to any tax, duty, charge or withholding on or from payments due from the Borrower (excluding net income taxes and franchise taxes or any other tax based upon income imposed upon the Bank by the jurisdiction in which the Bank is incorporated or has its principal place of business), or changes the basis of taxation of principal, interest, fees or any other payments to the Bank in respect of this Agreement or any other Related Agreement, or
 
(b)   imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, the Bank, or
 
(c)   imposes any other condition the result of which is to increase the cost to the Bank of holding and owning the Bonds and the extensions of credit and accommodations contemplated by this Agreement or any Related Document, or reduces any amount receivable by the Bank in connection therewith, or requires the Bank to make any payment calculated by reference to the Outstanding Bonds, or amounts received by the Bank, by an amount deemed material by the Bank, then, within ten (10) days of demand by the Bank, the Borrower agrees that they shall pay the Bank that portion of such increased expense incurred or resulting in an amount received which the Bank determines is attributable to receiving any such payment or holding or owning the Outstanding Bonds.
 
ARTICLE III
REPRESENTATIONS AND WARRANTIES
 
In order to induce the Bank to purchase the Bonds as provided herein, Borrower represents and warrants to the Bank that all of the matters set forth (or incorporated by reference) in the Bond Agreement are true and correct, and further represents and warrants to the Bank as follows:
 
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3.01   Organization, Etc.   The Corporation is a corporation duly formed, and validly existing under the laws of the State of Wisconsin.  The LLC is a limited liability company duly organized, and validly existing under the laws of the State of Wisconsin.  Each Borrower has the requisite power and authority and all necessary licenses, permits and franchises to execute and deliver, and to perform its obligations under, this Agreement and each of the Related Documents and Bond Documents to which it is a party, and to grant the liens and security interests provided for in this Agreement and the Related Documents and to own its assets and conduct its business as presently conducted.
 
3.02   Authorization . The making, execution, delivery and performance of this Agreement the Related Documents by each Borrower are within the powers of such Borrower, and have been duly authorized by all necessary action on the part of such Borrower.  The valid execution, delivery and performance of this Agreement and the Related Documents by each Borrower and the consummation of the transactions contemplated hereby and thereby:  (a) do not and will not violate any term or provision of any Requirement of Law; and (b) are not and will not be subject to any approval, consent or authorization of any Person or Government Authority, other than those approvals, consents or authorizations that have already been obtained and remain in full force and effect.  This Agreement and the Related Documents are the valid and binding obligations of each Borrower, enforceable against each Borrower in accordance with their respective terms.
 
3.03   No Conflicting Obligations . The making, execution, delivery and performance of this Agreement and the Related Documents and compliance with their respective terms do not violate or constitute a default, breach or violation under any Requirements of Law or any covenant, Bond Agreement, deed, lease, contract, agreement, mortgage, deed of trust, note or instrument to which any Borrower is a party or by which it or its Property is bound.
 
3.04   No Defaults .  No Borrower is in default under or in violation of (a) any Requirements of Law, (b) any covenant, indenture, deed, lease, agreement, mortgage, deed of trust, note or other instrument to which such Borrower is a party or by which such Borrower or its Property is bound, or (c) any Indebtedness.
 
3.05   No Litigation .  There is no pending or, to the knowledge of any Borrower, threatened litigation or administrative proceeding at law or in equity which would, if adversely determined, result in a Material Adverse Effect, and, to the best of each Borrower’s knowledge after diligent inquiry, there are no presently existing facts or circumstances likely to give rise to any such litigation or administrative proceeding.
 
3.06   Financial Statements .  The tax returns and financial statements which each Borrower previously provided to the Bank are accurate and complete.  There has been no Material Adverse Effect since the date of the latest of such statements.  Each entity Borrower’s Fiscal Year ends on December 31 of each year.
 
3.07   Accuracy of Information .  All information, certificates, forecasts, or statements given by Borrower to the Bank under this Agreement and the Related Documents were accurate, true and complete in all material respects when given, continue to be accurate, true and complete in all material respects as of the date hereof, and do not contain any untrue statement or omission
 
 
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of a material fact necessary to make the statements herein or therein not misleading.  There is no fact known to any Borrower which is not set forth in this Agreement, the Related Documents, the Bond Documents or other documents, certificates, forecasts, or statements furnished to the Bank by or on behalf of any Borrower in connection with the transactions contemplated hereby which will, or which in the future may (so far as any Borrower can reasonably foresee), cause a Material Adverse Effect.
 
3.08   Taxes .  Each Borrower has filed all federal, state, foreign and local tax returns which were required to be filed, except those returns for which the due date has been validly extended.  Each Borrower has paid or made provisions for the payment of all taxes, assessments, fees and other governmental charges owed, and no tax deficiencies have been proposed, threatened or assessed against any Borrower.  There is no pending or, to the best of each Borrower’s knowledge, threatened tax controversy or dispute as of the date hereof.
 
3.09   Property .  Each Borrower has good and marketable title to all of its Property, including without limitation, the Property reflected in its balance sheets referred to in Section 3.06.  There are no Liens of any nature on any of the Property except Permitted Liens.  All Property useful or necessary in each Borrower’s business, whether leased or owned, is in good condition, repair (ordinary wear and tear excepted) and working order and, to the best of each Borrower’s knowledge after diligent inquiry, conforms to all applicable Requirements of Law.  Each Borrower owns (or is licensed to use) and possesses all such patents, trademarks, trade names, service marks, copyrights and rights with respect to the foregoing as are reasonably necessary for the conduct of the business of such Borrower as now conducted and proposed to be conducted without, individually or in the aggregate, any material infringement upon rights of other Persons.
 
3.10   Licenses, Franchises .  Each Borrower has all authorizations, licenses, permits and franchises of any Governmental Authority which are necessary for the conduct of its business as now conducted and as proposed to be conducted.  All of such authorizations, licenses, permits and franchises are validly issued and in full force and effect, and each Borrower has fulfilled and performed in all material respects all of its obligations with respect thereto and has full power and authority to operate thereunder.
 
3.11   Places of Business; Collateral .  The principal places of business and chief executive offices of each Borrower are located at the addresses specified on Schedule 3.11, and the books and records of each Borrower and all records of account are located and hereafter shall continue to be located at such principal place of business and chief executive office.  All locations where collateral may be maintained are set forth on Schedule 3.11.
 
3.12   Other Names .  No Borrower has conducted business under any corporate, trade, “dba”, or fictitious names.
 
3.13   Federal Reserve Regulations .  No Borrower will directly or indirectly, use any proceeds of the Bonds to: (a) purchase or carry any “margin stock” within the meaning of Regulations U, G, T or X of the Board of Governors of the Federal Reserve System (12 C.F.R. Parts 221 and 224, as amended); (b) extend credit to other Persons for any such purpose or refund indebtedness originally incurred for any such purpose; or (c) otherwise take or permit any
 
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action which would involve a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulation of the Board of Governors of the Federal Reserve System.
 
3.14   ERISA .  Each Borrower and anyone under common control with such Borrower under Section 4001(b) of ERISA is in compliance in all respects with the applicable provisions of ERISA and: (a) no “prohibited transaction” as defined in Section 406 of ERISA or Section 4975 of the Code has occurred; (b) no “reportable event” as defined in Section 4043 of ERISA has occurred; (c) no “accumulated funding deficiency” as defined in Section 302 of ERISA (whether or not waived) has occurred; (d) there are no unfunded vested liabilities of any Employer Plan administered by any Borrower; and (e) each Borrower or the plan sponsor has timely filed all returns and reports required to be filed for each Employer Plan.
 
3.15   Investment Company Act; Public Utility Holding Company Act .  No Borrower is:  (a) an “investment company” or a company “controlled by an investment company” within the meaning of the Investment Company Act of 1940, as amended; or (b) a “holding company” or a “subsidiary” of a “holding company” or an “affiliate of a “holding company” or a “subsidiary” of a “holding company” within the meaning of the Public Utility Holding Company Act of 1935, as amended.
 
3.16   Environmental Laws .  The business of each Borrower has been operated in full compliance in all respects with all Environmental Laws, and no Borrower is subject to liability under any Environmental Law relating to the conduct of its business or the ownership of its Property and no facts or circumstances exist which could give rise to such liabilities.  No notice has been served on any Borrower claiming any violation of Environmental Laws, asserting any liability under an Environmental Law, or demanding payment or contribution for a liability under an Environmental Law.
 
 
ARTICLE IV
CONDITIONS PRECEDENT TO PURCHASE OF THE BONDS
 
In addition to the terms and conditions otherwise contained herein, the obligation of the Bank to purchase the Bonds is conditioned upon the Bank receiving each of the following items in form, detail and content satisfactory to the Bank:
 
4.01   Certain Related Documents .  The execution and delivery of this Agreement, the Security Agreement, the Guaranty, the Mortgage, the Disbursing Agreement, the Collateral Assignment of Construction Contracts, the Collateral Assignment of Life Insurance, and all other certificates, resolutions, or other documents required or completed hereunder.
 
4.02   Bond Documents . The execution and delivery of the Bond Documents and the issuance and sale of the Bonds.
 
4.03   Closing Certificate .  Closing certificates from Borrower in form and substance acceptable to the Bank.
 
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4.04   UCC Searches . A UCC report certified to by the Department of Financial Institutions of the State of Wisconsin indicating that no Borrower’s Property is subject to any security interest other than the Permitted Liens.
 
4.05   Insurance Certificates . Certificates of Borrower’s insurance coverages, showing insurance protection as required by this Agreement and the Related Documents.
 
4.06   Title Insurance .  Delivery to the Bank of commitments for mortgage title insurance issued by a title insurance company acceptable to the Bank under a current ALTA form:  (i) insuring that the LLC has a fee simple estate in the Project Real Property, subject to the Mortgage; (ii) insuring that the Mortgage is a valid paramount lien on the Project Real Property in an amount of $4,000,000, subject only to Permitted Liens; (iii) insuring against loss or damage incurred by reason of construction liens which are or may be prior to the lien of the Mortgage; (iv) excluding any exceptions for rights of parties in possession or matters which would be disclosed by surveys of the Project Real Property; and (v) containing gap and such other endorsements as the Bank may request.
 
4.07   Survey.  [Reserved] .
 
4.08   Environmental Reports .  Receipt by the Bank of such environmental reports and site assessments with respect to the Project Real Property (including, without limitation, Phase I and other environmental inspections and soil tests) as the Bank may request, and receipt by the Bank of a completed environmental questionnaire with respect to the Project Real Property in such form as the Bank may request and satisfactory to the Bank in all respects.
 
4.09   Counsel Opinion .  Receipt by the Bank, from Haferman & Ilten, Stevens Point, Wisconsin, counsel to the Borrower, of satisfactory opinions as to (a) the due authorization, execution and delivery of this Agreement; (b) the other matters referred to in Sections 3.01, 3.02 and 3.03; and (c) such other matters relating to each Borrower and the validity and enforceability of this Agreement and the Related Documents as the Bank shall reasonably require; and the Bank shall have received from Whyte Hirschboeck Dudek S.C., Milwaukee, Wisconsin, bond counsel; (x) an approving opinion regarding the Bonds, including an opinion confirming the tax exempt status of interest on the Bonds; and (y) an opinion that the Bonds are exempt from registration under the Securities Act of 1933, as amended.
 
4.10   Real Estate Appraisals .  Receipt by the Bank of an as-built appraisal of the Project Real Property, prepared by an appraiser licensed in the State of Wisconsin selected by the Bank, which appraisal shall be addressed to the Bank, conform with applicable Requirements of Law as to form and content, be in form and substance satisfactory to the Bank, and reflect an appraised value of the Project Real Property equal to or more than $4,000,000 (the “ Appraised Value ”).     Bank acknowledges receipt of an appraisal acceptable to it in form and content.
 
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4.11   Proceedings Satisfactory . All proceedings taken in connection with the transactions contemplated by this Agreement, the applicable Related Documents and the Bond Documents, and all instruments, authorizations and other documents applicable thereto, shall be satisfactory in form and substance to the Bank and its counsel.
 
4.12   Project Compliance .  Borrower providing Bank evidence in form satisfactory to Bank the following: (i) proof the Project is in compliance with all applicable zoning laws, regulations and ordinances; (ii) a complete set of final working plans and specifications of the Project indicating conformance with all current state, federal, and local laws, codes, regulations, and ordinances (including handicap access regulations), and indicating a level of quality of the Project acceptable to Bank; and (iii) a complete cost breakdown of the Project on standard breakdown sheets, along with a copy of the major contracts and subcontracts for the Project.
 
4.13   Supporting Documents . Such additional supporting documents and materials as the Bank may request from the Borrower.
 
ARTICLE IVA
CONDITIONS TO BANK’S AGREEMENT TO PURCHASE BONDS
AND TO FUND BORROWER’S REQUISITIONS
 
In addition to the conditions otherwise contained herein, in the Bond Agreement and in the Disbursing Agreement, provided no Default or Event of Default exists hereunder and the representations and warranties of the Borrower hereunder and under the Related Documents shall be true and correct in all material respects at the time of such Requisition, the obligation of the Bank to purchase Bonds, and to fund Borrower’s Requisitions, is conditioned upon the Bank receiving each of the following items in form, detail and content satisfactory to the Bank, on or prior to the times indicated in the following:
 
4A.1      Construction Contract . Prior to disbursements for construction of the Project, the Bank shall receive a Collateral Assignment of Construction Contract acknowledged by the contractor, in form and content satisfactory to the Bank in its sole discretion.
 
4A.2      Title Endorsements . Prior to disbursements for construction of the Project, the Bank shall receive such additional endorsements to the title insurance commitment, including, access, contiguity, comprehensive Form 9 endorsements, and such other endorsements as the Bank may request, which endorsements may require an ALTA certified survey.
 
 
ARTICLE V
AFFIRMATIVE COVENANTS
 
While any Bonds or Obligations remain outstanding, each Borrower (as applicable) covenants that it shall, unless otherwise waived or consented to in writing by the Bank:
 
5.01   Existence; Compliance With Laws; Maintenance of Business; Taxes .
 
(a)   Maintain its existence;
 
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(b)   Maintain all licenses, permits, rights and franchises reasonably necessary for the current and planned conduct of its business;
 
(c)   Comply in all respects with all Requirements of Law;
 
(d)   Conduct its business substantially as now conducted and proposed to be conducted; and
 
(e)   Pay before the same become delinquent and before penalties accrue thereon, all taxes, assessments and other government charges against it and its Property, and all other liabilities except to the extent and so long as the same are being contested in good faith by appropriate proceedings, with adequate reserves having been provided.
 
5.02    Maintenance of Property; Insurance .
 
       (a)   Keep all Property useful and necessary in its business, whether leased or owned, in good condition, repair and working order (ordinary wear and tear excepted) and from time to time make or cause to be made all needed and proper repairs, renewals, replacements, additions and improvements so that the business carried on in connection therewith may be properly and advantageously conducted at all times.
 
       (b)   Maintain with good, reputable and financially sound insurance underwriters insurance of such nature and in such amounts as is customarily maintained by Persons engaged in the same or similar business of comparable size to Borrower and such other insurance as may be required by law or as may be reasonably required in writing by the Bank.  Without limiting the foregoing, Borrower shall obtain and provide to Bank a current builder’s risk insurance policy in an amount equal to the total construction cost of the Project Real Property (naming Bank as mortgagee), comprehensive general liability insurance, and workers compensation insurance covering all personnel working on the Project, hazard insurance insuring the Project Real Property against loss by fire, lightning, vandalism, malicious mischief and other risks customarily covered by a standard extended coverage endorsement, in an amount not less than the full insurable value of the Project and naming Bank as mortgagee and lender’s loss payee.  Unless otherwise indicated above, each policy providing liability coverage to the Borrower shall name the Bank as an additional insured, and each property insurance policy insuring the Project Real Property and any business interruption insurance shall name the Bank as an additional loss payee, as its interest appears.  All policies shall require the insurer to give the Bank 30 days’ prior written notice of the modification, cancellation or nonrenewal of the policy and contain a lender’s loss payable endorsement in favor of Bank satisfactory to Bank.  The Borrower shall furnish copies of all such insurance policies or a certificate evidencing that the Borrower have complied with the requirements of this paragraph on the date hereof and on each renewal date of such policies.
 
5.03   Financial Statements .  Maintain a standard and modern system of accounting in accordance with sound accounting practice, and furnish to the Bank such information respecting
 
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the business, assets and financial condition of each Borrower, as Bank may reasonably request and, without request furnish to Bank:
 
     (a)   as soon as available, and in any event within 120 days after the close of each fiscal year, each Borrower shall provide Bank a copy of the tax return for such year as of the end of such fiscal year for such Borrower;
 
     (b)   as soon as available, and in any event within 120 days after the end of each fiscal year, consolidated and consolidating financial statements for the Corporation for each fiscal year, prepared in accordance with GAAP, and compiled by independent accountants acceptable to bank;
 
     (c)   as soon as available, and in any event within 120 days after the end of each fiscal year, internally prepared financial statements for the LLC for such fiscal year;
 
        (d)   as soon as available, and in any event within 30 days after the end of each fiscal quarter, consolidated and consolidating financial statements for the Corporation for each fiscal quarter, prepared in accordance with GAAP, all in reasonable detail and certified as true and correct, subject to review and normal year end adjustments, by the chief financial officer of Corporation;
 
        (e)     as soon as available, and in any event within 120 days after the end of each calendar year, a personal financial statement and tax return for the Individual Borrowers;
 
        (f)   as soon as available, and in any event within 120 days after the end of each fiscal year, internally prepared financial statements for the Guarantor;
 
     (g)   promptly upon learning of the occurrence of any of the following, written notice thereof to Bank, describing the same and the steps being taken with respect thereto: (i) the occurrence of any Default, (ii) the institution of, or any materially adverse determination or development in, any material litigation, arbitration proceeding or governmental proceeding, (iii) the occurrence of a “reportable event” under, or the institution of steps by any Borrower to withdraw from, or the institution of any steps to terminate, any Employer Plan as to which a Borrower may have liability, (iv) the commencement of any dispute with a third party which might lead to the modification, transfer, revocation, suspension or termination of this Agreement or any Related Document, or (v) any event which would have a Material Adverse Effect.
 
5.04   Inspection of Property and Records/Bank Audits .  At any reasonable time following reasonable notice (and as often as may be reasonably desired), permit representatives of Bank to visit the Project Real Property, examine its Property, books and records and discuss its affairs, finances and accounts with its officers or members (as applicable) and independent certified public accountants (who shall be instructed by the Borrower to make available to Bank the work papers of such accountants) and Borrower shall facilitate such inspections and examinations.
 
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5.05   Use of Proceeds .  Use the entire proceeds of the Bonds solely for the purposes set forth in Recital B hereto and within three (3) years of the date hereof.  The amount used for the Project shall not exceed the lesser of (i) $4,000,000, or (iii) 100% of the construction cost of the Project plus the acquisition cost of the Project for equipment at the Facility.  The amount used for issuance and other eligible costs shall not exceed $80,000.
 
5.06   Bank Accounts .  Maintain its primary deposit and operating accounts with Bank.
 
5.07   Compliance With Other Agreements .  Comply with, pay and discharge all existing notes, mortgages, deeds of trust, leases, indentures and any other contractual arrangements to which such Borrower is a party (including, without limitation, all Indebtedness) in accordance with the respective terms of such instruments so as to prevent any default thereunder.
 
5.08   Compliance With Laws.
 
(a)   Comply in all respects with all Requirements of Law.
 
(b)   Maintain at all times all permits, licenses and other authorizations required under Environmental Laws, and comply in all respects with all terms and conditions of the required permits, licenses and authorizations and all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in the Environmental Laws.
 
(c)   Notify the Bank promptly upon obtaining knowledge that (i) any Property previously or presently owned or operated is the subject of an environmental investigation by any Government Authority having jurisdiction over the enforcement of Environmental Laws or other potential claim or notice of threatened litigation or violation of a Requirement of Law, (ii) any Borrower has been or may be named as a responsible party subject to liability under any Environmental Laws, or (iii) any hazardous substance is located on any Property except in compliance with all Requirements of Law.
 
(d)   At any reasonable time following reasonable notice and as often as may be reasonably desired, permit the Bank or an independent consultant selected by the Bank to conduct an environmental audit satisfactory to the Bank for the purpose of determining whether Borrower and its Property comply with Environmental Laws and whether there exists any condition or circumstance which may require a cleanup, removal or other remedial action by Borrower with respect to any hazardous substance.  Borrower shall facilitate such environmental audit.  The Bank shall provide Borrower, at the request of the Borrower, with all reports and findings but the Borrower may not rely on such environmental audit for any purpose.  Any such environmental audit of the Borrower’s Property shall be at the expense of the Borrower at any time following an Event of Default or upon the occurrence of an event described in Section 5.08(c); provided , however , that the Bank’s environmental audit shall not be at the Borrower’s expense if (i) a Government Authority or a firm or firms of geotechnical engineers and/or environmental consultants hired by Borrower and reasonably acceptable to the Bank shall undertake to make an environmental audit, and (ii) the Borrower shall provide the Bank
 
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at the Borrower’s expense with, and the Bank shall be entitled to rely on, all reports and findings of such Government Authority or geotechnical engineers as soon as such reports and findings are made available to the Borrower.
 
5.09   Payment of Fees and Costs .
 
(a)   Pay the Bank all additional costs including, without limitation, wire transfer or other charges pertaining to the transfer of funds.
 
(b)   Pay immediately upon receipt of an invoice all reasonable fees and expenses incurred by the Bank with respect to negotiation, preparation and execution of this Agreement and the Related Documents, and any amendments thereof and supplements thereto, including, without limitation, appraisal fees, environmental inspection fees, and the reasonable fees of in-house and outside counsel.
 
(c)   Pay immediately upon receipt of an invoice all reasonable fees and expenses incurred by the Bank with respect to protection or enforcement (including collection and disposition of Collateral) of the Bank’s rights under this Agreement and the Related Documents, and all costs and expenses which may be incurred by the Bank with respect to an Event of Default as provided in Section 7.02, including, without limitation, reasonable fees of in-house and outside legal counsel.
 
5.10   Project Disbursements .  Assure that all disbursements for the Project are submitted and made through the Title Company in accordance with the Disbursing Agreement with construction endorsements satisfactory to Bank, and that all progress payments requested will be on forms satisfactory to Bank, and that prior to disbursement, construction progress will be verified to satisfy Bank that costs are and will be within budget.
 
5.11   No Liens; Plans; Covenants, Conditions and Restrictions .  Complete the Project so that the Project is free from Liens (except for Permitted Liens), built in accordance with the plans and specifications approved by Bank, and if requested by Bank, pay for and consent to Bank retaining an inspecting engineer to review the plans and specifications of the Project and to review and approve all draws, and completed in compliance with all covenants, conditions and restrictions on the Property.
 
5.12   Project Lease .  Upon the receipt of the certificate of occupancy for the Project, the LLC, as landlord, and the Corporation, as tenant, shall execute the Project Lease, which lease shall be in form and substance satisfactory to Bank.
 
5.13   Key-Person Life Insurance .  Maintain Key Person life insurance on the life of Jamie L. Mancl in an amount not less than $4,000,000 good, reputable and financially sound insurance underwriters insurance of such nature.  Such policy shall name Bank as mortgagee and lender’s loss payee and shall require the insurer to give the Bank 30 days’ prior written notice of the modification, cancellation or nonrenewal of the policy.  The Borrower shall furnish copies of such insurance policy or a certificate evidencing that the Borrower has complied with the requirements of this paragraph on the date hereof and on each renewal date of such policies.
 
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5.14   Minimum Tangible Net Worth .  Commencing for the fiscal year ended December 31, 2007 and each fiscal year thereafter, the Corporation shall maintain a Tangible Net Worth of not less than $600,000 for 2007, and increasing annually by an amount equal to sixty percent (60%) of the Corporation’s Net Income, tested at the end of each fiscal year.
 
5.15   Debt Service Coverage Ratio .  The Corporation shall at all times maintain a Debt Service Coverage Ratio measured as of the last day of each fiscal quarter of not less than 1.25:1.0.
 
5.16   Total Indebtedness to Tangible Net Worth Ratio .  The Corporation shall at all times maintain a total Indebtedness to Tangible Net Worth Ratio measured as of the last day of each fiscal quarter of not more than 3.50:1.0.
 
5.17   Annual Resting of Line of Credit .  As a condition for Borrower’s line of credit facility with Lender, Borrower agrees to rest the line of credit and leave at zero (0) dollars the balance owing thereunder for a period of not less than thirty (30) consecutive days annually.
 
5.18   Mortgage on After-Acquired Real Estate .  The Borrower shall grant a first priority mortgage in favor of Trustee and Original Purchaser on any real estate acquired after the Closing Date, including Lot 2 of CSM 8590, City of Wisconsin Rapids, Wood County, Wisconsin, upon the acquisition of such real estate.
 
 
ARTICLE VI
NEGATIVE COVENANTS
 
Each Borrower covenants and agrees that, from and after the date of this Agreement and until the entire amount of the Obligations are paid in full and satisfied and no Bonds remain Outstanding, such Borrower shall not take any of the following actions:
 
6.01   Sale of Assets, Consolidation, Merger, Acquisitions, Etc.   (a) Except for sales of inventory in the ordinary course of business, sell, transfer, convey, or lease all or substantially all of its Property; (b) except for the Project Lease with the Corporation for sales of obsolete or worn out equipment in the ordinary course of business, sell, transfer, lease all or any part of the Project Real Property; (c) consolidate or merge with or into any other Person; (d) directly or indirectly, sell or transfer any Property, used or useful in its business, and thereafter lease such Property or other Property which it intends to use for substantially the same purposes; (e) create a Subsidiary; (f) purchase or otherwise acquire all or substantially all of the assets or stock of any Person; (g) enter into any joint venture; or (h) amend its articles of organization or operating agreement.
 
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6.02   Indebtedness .  Issue, create, incur, assume, guaranty or otherwise become liable with respect to (or agree to issue, create, incur, assume, guaranty or otherwise become liable with respect to), or permit to remain outstanding, any Indebtedness except:  (a) the Obligations; (b) current liabilities (other than for borrowed money) of Borrower incurred in the ordinary course of business which are not more than ninety (90) days overdue, unless being contested in good faith and with due diligence; (c) Indebtedness to the Issuer related to the Bonds; and (d) purchase money Indebtedness secured by Permitted Liens.
 
6.03   Liens .  Create or permit to be created or allow to exist any Lien upon or interest in any Property of Borrower except Permitted Liens.
 
6.04   Guaranty .  Guaranty or otherwise in any way become or be responsible for obligations of any other Person, directly or indirectly, including any agreement to purchase the indebtedness of any other Person, agreement for the furnishing of funds to any other Person through the purchase of goods, supplies or services, an agreement for stock purchase or capital contribution or any other agreement or undertaking to pay or discharge the indebtedness of any Person, or otherwise, except for the endorsement of negotiable instruments by Borrower for deposit or collection or similar transactions in the ordinary course of business.
 
6.05   Loans, Investments .  Make or commit to make advances, loans, extensions of credit or capital contributions to, or purchases of any stock, bonds, notes, debentures or other securities of, or make any other investment in, any Person except:  (a) accounts, chattel paper, and notes receivable created by Borrower in the ordinary course of business; (b) extensions of credit to customers of Borrower in the ordinary course of business and consistent with past practice, (c) investments in bank certificates of deposit (but only with FDIC-insured commercial banks having a combined capital and surplus in excess of $20,000,000), open market commercial paper maturing within one year having the highest rating of either Standard & Poors Rating Service or Moody’s Investors Services, Inc., U.S. Treasury Bills subject to repurchase agreements and short-term obligations issued or guaranteed by the U.S. Government or any agency thereof; and (d) investments in open-end diversified investment companies of recognized financial standing investing solely in short-term money market instruments consisting of securities issued or guaranteed by the United States government, its agencies or instrumentalities, time deposits and certificates of deposit issued by domestic banks or London branches of domestic banks, bankers acceptances, repurchase agreements, high grade commercial paper and the like.
 
6.06   Compliance with ERISA (a) Terminate any Employer Plan so as to result in any material liability to PBGC; (b) engage in any “prohibited transaction” (as defined in Section 4975 of the Code) involving any Employer Plan which would result in a material liability for an excise tax or civil penalty in connection therewith; or (c) incur or suffer to exist any material “accumulated funding deficiency” (as defined in Section 302 of ERISA), whether or not waived, involving any condition, which presents a risk of incurring a material liability to PBGC by reason of termination of any such Employer Plan.
 
6.07   Restricted Payments .  Without the Bank’s consent, make any Restricted Payments; provided, however, that, so long as no Default has occurred and is continuing or will occur as a result of any such payment, each Borrower may pay distributions to its members or
 
19

 
shareholders (as applicable) for each member’s or shareholder’s state and federal tax liability for such member’s interest in such Borrower.
 
6.08   Project Lease – No Modification .  Modify or amend the Project Lease, after the same has been approved by the Bank and executed by the Corporation and the LLC.
 
6.09   Salaries .  Pay officer compensation in excess of $90,000 annually or otherwise excessive or unreasonable salaries, bonuses, commissions, consultant fees, or other compensation.
 
6.10   Change In Control .  Make no changes in the current ownership structure or management of either entity Borrower, without Bank’s consent.
 
 
ARTICLE VII
EVENTS OF DEFAULT
 
7.01   Events of Default Defined .  The occurrence of any one or more of the following shall constitute an “Event of Default”:
 
(a)   Failure to pay any of the Obligations when and as the same shall become due and payable, whether upon demand, at maturity, by acceleration or otherwise;
 
(b)   Any Borrower fails to observe or perform any of the covenants, agreements or conditions contained in Article VI;
 
(c)   Any Borrower fails to observe or perform any of the other covenants, agreements or conditions contained in Article V which failure continues for a period of thirty (30) days following the delivery of written notice by the Bank specifying the existence of the default;
 
(d)   Any representation or warranty made by a Borrower herein or in any Related Document, or in any certificate, document or financial statement delivered to the Bank pursuant hereto or thereto shall prove to have been incorrect in any material respect as of the time when made or given;
 
(e)   This Agreement or any of the Related Documents shall at any time cease to be in full force and effect, or any Borrower attempts to revoke or terminate this Agreement or any Related Document;
 
(f)   A final judgment (or judgments) shall be entered against any Borrower which singularly or when added to any other outstanding final judgment (or judgments) against such Borrower exceeds the aggregate amount of $10,000, and such judgment (or judgments) shall remain outstanding and unsatisfied, unbonded, uninsured or unstayed after thirty days from the date of entry thereof;
 
(g)   Any Borrower:  (i) becomes insolvent; or (ii) is unable, or admits in writing its, his or her inability, to pay its, his or her debts as they mature; or (iii) makes a general assignment for the benefit of creditors or to an agent authorized to liquidate any
 
20

 
substantial amount of its Property; or (iv) becomes the subject of an “Order for Relief’ as said term is defined under the United States Bankruptcy Code; or (v) files an answer to a creditor’s petition admitting the material allegations thereof for reorganization or to effect a plan or other arrangement with creditors; or (vi) apply to a court for the appointment of a receiver for any assets; or (vii) has a receiver appointed for any of its, his or her assets (with or without the consent of such Borrower) and such receiver shall not be discharged within ninety (90) days after the appointment; or (viii) otherwise becomes the subject of any insolvency proceeding or an out-of-court settlement with its creditors, not in the ordinary course of business;
 
(h)   Either Borrower (that is an entity) is dissolved or gives notice of dissolution to any claimant;
 
(i)   Any Borrower defaults (as principal or guarantor or otherwise) either in the payment of the principal of or interest on any other Indebtedness, or with respect to any of the provisions of any evidence of such Indebtedness or any agreement under which such evidence of Indebtedness may have been issued or secured, and such default shall continue for more than any period of grace, if any, specified in such instrument;
 
(j)   This Agreement or any of the Related Documents shall at any time cease to be in full force and effect, or any Borrower attempts to revoke or terminate this Agreement or any Related Document;
 
(k)   There occurs an event of default under any of the Related Documents;
 
(l)   Any Borrower defaults (as principal or guarantor or otherwise) either in the payment of the principal of or interest on any other Indebtedness to the Bank, or with respect to any of the provisions of any evidence of such Indebtedness or any agreement under which such evidence of Indebtedness may have been issued or secured, and such default continues for more than any period of grace, if any, specified in such instrument; or
 
(m)   An event of default (as defined in the Bond Agreement) occurs and is continuing under the Bond Agreement.
 
7.02   Remedies Upon Event of Default .
 
(a)   Upon the occurrence of an Event of Default, all Obligations shall become immediately due and payable without demand, notice, presentment, protest or other action by the Bank, all of which are hereby waived by each Borrower.  The Bank shall have the right to notify the Trustee of said Event of Default, pursuant to Section 7.01(h) of the Bond Agreement, and to cause the acceleration of the payment of interest and principal on the Bonds.  The Bank shall have all of the rights and remedies provided to the Bank by the Related Documents, at law or in equity, and no remedy herein conferred upon the Bank is intended to be exclusive of any other remedy.  Upon the occurrence of an Event of Default, Borrower shall pay all costs and expenses which may be incurred by the Bank with respect thereto, including reasonable attorneys’ fees, and all such sums shall be and become a part of the Indebtedness of Borrower to the Bank.
 
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(b)   The Bank may at any time without prior notice or demand set off against any credit balance or other money now or hereafter owed to Borrower all or any part of the Obligations.  Each Borrower hereby grants to the Bank a security interest in and Lien on any such credit balance or other money.  The Bank shall give notice of its exercise of this remedy to the Borrower as soon as practicable.
 
 
ARTICLE VIII
MISCELLANEOUS
 
8.01   Indemnity .  Each Borrower shall defend, indemnify and hold harmless the Bank, and its directors, officers, employees and agents from and against any and all loss, cost, expense, damage or liability (including reasonable attorneys’ fees) incurred in connection with any claim, counterclaim or proceeding brought as a result of, arising out of or relating to any transaction financed or to be financed, in whole or in part, directly or indirectly, with the proceeds of the Bonds or the entering into and performance of this Agreement, any Bond Document, any Related Document or any agreement, document or instrument related to any of the foregoing by the Bank, or the activities of any Borrower.  This indemnification will survive termination of this Agreement and the discharge and release of any Bond Documents and Related Documents.
 
8.02   Assignability; Successors .  No Borrower’s rights and liabilities under this Agreement are assignable in whole or in part without the prior written consent of the Bank.  The provisions of this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Bank and the successors and permitted assigns of the Borrowers.
 
8.03   Survival .  All agreements and representations and warranties made herein and in the Related Documents shall survive the execution and delivery of this Agreement and the Related Documents.
 
8.04   Counterparts; Headings .  This Agreement may be executed in several counterparts, each of which shall be deemed an original, but such counterparts shall together constitute but one and the same agreement.  The section headings in this Agreement are inserted for convenience of reference only and shall not constitute a part hereof.
 
8.05   Entire Agreement; Amendments .  This Agreement and the Related Documents contain the entire understanding of the parties with respect to the subject matter hereof, and supersede all other understandings, oral or written, with respect to the subject matter hereof.  No statement or writing subsequent to the date hereof purporting to modify, alter or amend any portion hereof, including Borrower’s obligation to pay the amount due hereunder (whether at maturity, by reason of acceleration or otherwise), shall be effective unless consented to in a writing, which makes specific reference to this Agreement, and which has been signed by the party against which enforcement thereof is sought.  Any amendment, modification, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.
 
8.06   Notices .  All communications, consents and notices required or permitted by this Agreement shall be in writing and shall be deemed to have been given or made (a) when delivered in hand or by courier, or (b) three days after being deposited in the mail (including
 
22

 
private mail service), postage prepaid.  Communications, consents and notices shall be delivered personally or by certified or registered mail, postage prepaid, and addressed as follows, unless and until either of such parties notifies the other in accordance with this section of a change of address:
 
(i)           If to Corporation:
Advanced Fiberglass Technologies, Inc.
2330 South 16 th Street
Wisconsin Rapids, WI  54495
Attn:               Jamie L. Mancl
Phone:            (715) 421-2060
Fax:                 (715) 421-2048
with copies to:
Haferman & Ilten
1525 Main Street
Stevens Point, WI  54481-2836
Attn:                Mark O. Ilten, Esq.
Phone:             (715) 342-4700
Fax:                  (715) 342-9974
(ii)           if to LLC:
M & W Fiberglass, LLC
2330 South 16 th Street
Wisconsin Rapids, WI  54495
Attn:                 Jamie L. Mancl
Phone:              (715) 421-2060
Fax:                   (715) 421-2048
with copies to:
Haferman & Ilten
1525 Main Street
Stevens Point, WI  54481-2836
Attn:                  Mark O. Ilten, Esq.
Phone:               (715) 342-4700
Fax:                    (715) 342-9974
               (iii)    if to the Individual Borrowers:
Advanced Fiberglass Technologies, Inc.
2330 South 16 th Street
Wisconsin Rapids, WI  54495
Attn:                   Jamie L. Mancl
Phone:                (715) 421-2060
Fax:                     (715) 421-2048
 
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with copies to:
Haferman & Ilten
1525 Main Street
Stevens Point, WI  54481-2836
Attn:                    Mark O. Ilten, Esq.
Phone:                 (715) 342-4700
Fax:                      (715) 342-9974
(iv)    if to the Bank:
Nekoosa Port Edwards State Bank
405 Market Street
P.O. Box 9
Nekoosa, WI  54457
Attn:                     Robb N. Sigler
Phone:                  (715) 886-3104
Fax:                       (715) 886-3310
with copies to:
Whyte Hirschboeck Dudek S.C.
555 East Wells Street
Suite 1900
Milwaukee, Wisconsin  53202-3819
Attn:                      Andrew J. Guzikowski, Esq.
Phone:                  (414) 273-2100
Fax:                       (414) 223-5000
 
8.07   No Waiver .  Any action or inaction by the Bank, taken in the absence of the satisfaction of any condition imposed upon Borrower by the Related Documents, including those imposed by Sections 4.01 and 4.02 of this Agreement, shall not be deemed to constitute a waiver of any such condition by the Bank.
 
8.08   Severability . Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.
 
8.09   Further Assurances . Borrower agrees to do such further acts and things, and to execute and deliver such additional conveyances, assignments, agreements and instruments, as the Bank may at any time reasonably request in connection with the administration or enforcement of this Agreement or the Related Documents or in order better to assure and confirm unto the Bank its rights, powers and remedies hereunder.
 
8.10   Conflicts and Ambiguities . In the event of any ambiguity or conflict as between the terms of this Agreement, the Related Documents or any other document executed and delivered pursuant to this Agreement, the terms of this Agreement shall control.
 
8.11   Governing Law .  The validity, construction, enforcement and performance of this Agreement shall be governed by the internal laws of the State of Wisconsin.
 
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8.12   Consent to Jurisdiction . Borrower hereby irrevocably submits to the exclusive jurisdiction of any United States federal or Wisconsin state court sitting in Milwaukee, Wisconsin, in any action or proceeding arising out of or relating to this Agreement or any related documents, and Borrower hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in any such court and irrevocably waives any objection it may now or hereafter have as to the venue of any such suit, action or proceeding brought in such a court or that such court is an inconvenient forum.  Nothing herein shall limit the right of the Bank to bring proceedings against the Borrower in the courts of any other jurisdiction.  Any judicial proceeding by Borrower against the Bank, or any affiliate of the Bank involving, directly or indirectly, any matter in any way arising out of, related to, or connected with this Agreement or any Related Documents shall be brought only in a United States federal or Wisconsin state court sitting in Milwaukee, Wisconsin.
 
8.13   Fees and Expenses .  Borrower shall reimburse the Bank for all out-of-pocket expenses incurred in connection with the preparation of this Agreement and the Related Documents (including, without limitation, filing and recording fees, appraisal expenses, survey expenses, hazard and title insurance premiums, inspections fees, and the reasonable fees and expenses of all of its counsel, advisors, consultants and auditors retained in connection with this Agreement and the Related Documents and the transactions contemplated thereby and advice in connection therewith).  Borrower hereby shall reimburse the Bank for all fees, costs and expenses, including the fees, costs and expenses of counsel or other advisors (including environmental and management consultants) for advice, assistance, or other representation in connection with:
 
(i)   the purchase and holding by Bank of the Bonds;
 
(ii)   any amendment, modification or waiver of, or consent with respect to, this Agreement, any of the Related Documents or any of the Bond Documents or advice in connection with the administration of the extensions of credit made pursuant hereto or its rights hereunder or thereunder;
 
(iii)   any litigation, contest, dispute, suit, proceeding or action (whether instituted by the Bank, Borrower, or any other Person) in any way relating to the Collateral, this Agreement, any of the Bond Documents, any of the Related Documents or any other agreement to be executed or delivered in connection therewith or herewith, whether as party, witness, or otherwise, including any litigation, contest, dispute, suit, case, proceeding or action, and any appeal or review thereof, in connection with a case commenced by or against Borrower or any other Person that may be obligated to the Bank by virtue of this Agreement, any of the Bond Documents or any of the Related Documents;
 
(iv)   any attempt to enforce any rights of the Bank against Borrower, or any other Person that may be obligated to the Bank by virtue of this Agreement or any of the Related Documents;
 
(v)   efforts to (A) monitor any of the Obligations, (B) evaluate, observe, assess Borrower or its affairs, and (C) verify, protect, evaluate, assess, appraise,
 
25

 
collect, sell, liquidate or otherwise dispose of any of the Collateral; including, without limitation, all the attorneys’ and other professional and service providers’ fees arising from such services, including those in connection with any appellate proceedings; and all expenses, costs, charges and other fees incurred by such counsel and others in any way or respect arising in connection with or relating to any of the events or actions described in this Section 8.13 shall be payable, on demand by Borrower to the Bank.  Without limiting the generality of the foregoing, such expenses, costs, charges and fees may include: fees, costs and expenses of accountants, attorneys, environmental advisors, appraisers, investment bankers, management and other consultants and paralegals; court costs and expenses; photocopying and duplication expenses; court reporter fees, costs and expenses; long distance telephone charges; air express charges; telegram charges; secretarial overtime charges; and expenses for travel, lodging and food paid or incurred in connection with the performance of such legal or other advisory services.
 
8.14   Assignments; Participations .  The Bank may at any time sell, assign or transfer to one or more banks or other entities (“Participants”) interests in this Agreement and the other Related Documents or any other interest of the Bank or extension of credit hereunder.  Borrower authorizes the Bank to disclose to any Participant and any such prospective Participants any and all financial information in the Bank’s possession concerning Borrower, and its affiliates which has been delivered to the Bank by or on behalf of Borrower pursuant to this Agreement or any Related Document or which has been delivered to the Bank by or on behalf of the Borrower in connection with the Bank’s credit evaluation of Borrower, and its affiliates prior to becoming a party to this Agreement.  Each Borrower agrees that if amounts outstanding under this Agreement or any Related Document are due and unpaid, or shall have been declared to be or shall have become due and payable upon the occurrence of any Event of Default, each Participant shall be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement or such Related Document to the same extent as if the amount of its participating interest were owing directly to it as a lender under this Agreement or any Related Document.
 
8.15   WAIVER OF JURY TRIAL .  EACH BORROWER AND THE BANK HEREBY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE RELATED DOCUMENTS, THE OBLIGATIONS HEREUNDER AND THEREUNDER, ANY COLLATERAL SECURING THE OBLIGATIONS, OR ANY TRANSACTION ARISING THEREFROM OR CONNECTED THERETO.  BORROWER AND THE BANK REPRESENT TO THE OTHER THAT THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY GIVEN.
 


[SIGNATURE PAGE FOLLOWS]
 

 
 
26

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
 
  ADVANCED FIBERGLASS TECHOLOGIES, INC. , a Wisconsin corporation  
       
 
By:
/s/ Jamie L. Mancl  
    Jamie L. Mancl, President  
 
 
  M & W FIBERGLASS, LLC , a Wisconsin limited liability company  
       
 
By:
/s/ Jamie L. Mancl  
    Jamie L. Mancl, its sole member  
 
 
       
 
 
/s/ Jamie L. Mancl  
    JAMIE L. MANCL , an individual resident of the State of Wisconsin  
 
 
       
 
 
/s/ Jennifer Mancl  
    JENNIFER MANCL , an individual resident of the State of Wisconsin  
 
 
  NEKOOSA PORT EDWARDS STATE BANK , a Wisconsin banking corporation  
       
 
By:
/s/ Robb N. Sigler  
    Robb N. Sigler, President  



[Signature Page of Credit Agreement]   
 
 

 

SCHEDULE 1.01(A)
 
PROJECT REAL PROPERTY
 
Lot 1 of Wood County Certified Survey Map No. 8590 recorded in Volume 29 of Survey Maps at Page 190, being part of the SE ¼ of the NE ¼ of Section 10, Township 22 North, Range 6 East, City of Wisconsin Rapids, Wood County, Wisconsin.

Tax Key No.:  Part of 34-09841 and Part of 34-09852

 
 
 

 

SCHEDULE 3.11
 
PLACES OF BUSINESS/LOCATIONS OF COLLATERAL
 
2330 South 16 th Street
Wisconsin Rapids, WI  54495

4400 Commerce Drive
Wisconsin Rapids, WI  54495

 
 
 
 
 



 
 


 
 
 
 
 
 
 
 
EXHIBIT 10.7
 
INDUSTRIAL DEVELOPMENT REVENUE BONDS,
CONSTRUCTION MORTGAGE, ASSIGNMENT OF LEASES AND
RENTS AND FIXTURE FILING DATED FEBRUARY 28, 2007

 
 
 

 




Document No.

 


CONSTRUCTION MORTGAGE,
ASSIGNMENT OF LEASES AND RENTS
AND FIXTURE FILING
 

 
   
Return to:    
Lisa R. Lange, Esq.  
      White Hirschboeck Dudek S.C.
     
One Ease Main St., Suite 300
Madison, WI  53703
 
Given By:
 
M & W FIBERGLASS, LLC,
a Wisconsin limited liability company

In favor of:

NEKOOSA PORT EDWARDS STATE BANK
Dated as of February 28, 2007

Relating to:

$4,000,000
City of Wisconsin Rapids, Wisconsin
Industrial Development Revenue Bonds, Series 2007A, 2007B and 2007C
(Advanced Fiberglass Technologies Project)


This Is A Construction Mortgage Within The Meaning of Wis. Stats. §409.334(8) and §706.11(1m)
This Mortgage Secures Future Advances
This is Non-Homestead Property

 
 
 

 

CONSTRUCTION MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING
 
THIS CONSTRUCTION MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING (the “ Mortgage ”) is made and entered into as of the 28 th day of February, 2007, by M & W FIBERGLASS, LLC, a Wisconsin limited liability company (the “ Mortgagor ”), in favor of NEKOOSA PORT EDWARDS STATE BANK, as Trustee and as Original Purchaser of the Bonds (the “ Bank ”).

RECITALS
 
A.           The City of Wisconsin Rapids, Wisconsin (the “ Issuer ”), will issue its Industrial Development Revenue Bonds, Series 2007A, 2007B and 2007C (Advanced Fiberglass Technologies, Inc. Project) in the aggregate principal amount of Four Million Dollars ($4,000,000) (the “ Bonds ”), pursuant to a Bond Agreement dated as of February 28, 2007 (the “ Bond Agreement ”), by and between the Issuer, the Mortgagor, Advanced Fiberglass Technologies, Inc., a Wisconsin corporation (the “ Corporation ” and together with the Mortgagor, Jamie L. Mancl and Jennifer Mancl, the “ Borrower ,”) Nekoosa Port Edwards State Bank, as trustee (the “ Trustee ”) and Nekoosa Port Edwards State Bank, as Original Purchaser (the “ Original Purchaser ”).
 
B.           The proceeds derived from the issuance of the Bonds will be loaned to the Borrower pursuant to the Bond Agreement, and used to finance a project consisting of (i) the construction of an approximately 70,000 square foot manufacturing facility located at 4400 Commerce Drive, in the City of Wisconsin Rapids, Wisconsin (the “ Facility ”) to be owned by Mortgagor and operated by the Corporation; and (ii) the acquisition and installation of equipment at the Facility (collectively, the “ Project ”).
 
C.           To provide the funds to be loaned to the Borrower for payment of the costs of the Project, the Issuer has contracted for the sale of the Bonds to the Original Purchaser, and the Original Purchaser has agreed to purchase such Bonds in reliance on Borrower’s agreement to the terms and conditions set forth in that certain Credit Agreement dated as of February 28, 2007 by and between the Borrower and the Original Purchaser (the “ Credit Agreement ”).
 
D.           It is a condition precedent to the Original Purchaser’s obligation to purchase the Bonds that the Mortgagor shall have executed and delivered this Mortgage to the Bank to secure the Obligations (as defined in the Credit Agreement) and all other indebtedness (whether presently existing or hereafter arising) of the Mortgagor to the Bank.

AGREEMENT
 
In consideration of those obligations as stated in the Recitals and to induce the Bank to enter into the Credit Agreement and to purchase the Bonds, the Mortgagor hereby agrees with the Bank as follows:

 
 

 
ARTICLE I
DEFINITIONS

1.01                       Definitions .  All capitalized terms used herein and not otherwise defined herein shall have meanings assigned to them in the Credit Agreement. The following terms used herein have the meanings defined below:
 
                       (a)       Event of Default :  shall have the same meaning assigned to such term in Article V.
 
                       (b)       Insured Casualty :  shall mean any insured damage to or destruction of the Mortgaged Property or any part thereof.
 
                       (c)       Lease or Leases : shall mean any lease of all or a portion of the Real Property.
 
                   (d)       Mortgaged Property :  shall mean the Real Property together with all of the other property and items described in Article II hereof, including the Project.
 
                  (e)       Real Property :  shall mean the land described in Exhibit A attached hereto and made a part hereof, together with any and all easements, rights-of-way, licenses, hereditaments, rights and privileges and appurtenances thereto, together with any and all other land which may at any time hereafter be conveyed by the Mortgagor to the Bank as security for the Secured Obligations.
 
                       (f)       Secured Obligations : shall have the meaning assigned to it in Article II.
 
 
ARTICLE II
GRANTING CLAUSE
 
To secure the performance of all covenants and agreements contained in this Mortgage, to secure the timely payment and performance of the Obligations, to secure all other obligations and indebtedness of the Borrower to the Bank, including without limitation all obligations and indebtedness under the Bond Documents, the Credit Agreement and the other Related Documents, together with all fees, charges, interest and other amounts that may come due thereunder (all of the foregoing, the “ Secured Obligations ”), the Mortgagor, by these presents does hereby mortgage, grant, convey and assign to the Bank, its successors and assigns, with power of sale, forever, all and singular their entire estate and interest, whether fee or leasehold or otherwise, in the following described property, to-wit:

2.01                       Real Property .  The Real Property.
 
2.02                       Highways and Thoroughfares .  All right, title and interest of Mortgagor, if any, now or at any time hereafter existing, in and to all highways, roads, streets, alleys and other public thoroughfares, bordering on or adjacent to the Real Property, together with all right, title and interest
 
 
 
 

 
of Mortgagor to the land making up such highways, roads, streets, alleys and other public thoroughfares and all heretofore or hereafter vacated highways, roads, streets, alleys and public thoroughfares adjoining or within the Real Property or any part thereof.
 
2.03                       Buildings and Fixtures .  All buildings, structures, improvements, plants, works and fixtures now or at any time hereafter located on any portion of the Real Property, including the Project, and, without any further act, all extensions, additions, betterments, substitutions and replacements thereof.
 
2.04                       Intangible Rights, Rents .  All rights, privileges, permits, licenses, easements, consents, tenements, hereditaments and appurtenances now or at any time hereafter belonging to or in any wise appertaining to the Real Property or to any property now or at any time hereafter comprising a part of the property subject to this Mortgage; and all right, title and interest of Mortgagor, whether now or at any time hereafter existing, in all reversions and remainders to the Real Property and such other property, and all rents, income, issues, profits, royalties and revenues derived from or belonging to such Real Property and other property subject to this Mortgage or any part thereof.
 
2.05                       Proceeds .  Any and all proceeds of the conversion, whether voluntary or involuntary, of all or any part of the Real Property and other property and interests subject to this Mortgage into cash or liquidated claims, including, without limitation by reason of specification, proceeds of insurance and condemnation awards and any and all other property of every name and nature from time to time by delivery or writing of any kind conveyed, mortgaged, pledged, assigned or transferred for additional security for this Mortgage.
 
TO HAVE AND TO HOLD all of the foregoing (the “ Mortgaged Property ”) unto the Bank, its successors and assigns, forever; provided that if the Borrower pay all amounts required to be paid to the Bank under the Bond Documents, the Credit Agreement and other Related Documents according to their terms, make all other required payments and perform all other terms, conditions, covenants and agreements contained in the Bond Documents, the Credit Agreement and the other Related Documents, then this Mortgage shall cease and be void.  If any improvements or property become a part of the Mortgaged Property after the date hereof by location or installation on the Real Property or in the building or buildings now or in the future situated thereon or otherwise, then this Mortgage shall immediately attach to and constitute a lien or security interest against such additional items without further act or deed of Mortgagor.


ARTICLE III
ASSIGNMENT OF LEASES AND RENTS
 
3.01                       Collateral Assignment of Leases and Rents .  The Mortgagor does hereby conditionally as and for collateral and as security for the Secured Obligations sell, assign, transfer and set over unto the Bank, its successors and assigns, all of the right, title and interest of the Mortgagor in, to and under the Leases, including all amendments and supplements to and renewals and extensions of the Leases at any time made; together with all rents, earnings, income, issues and profits arising from the Project or from said Leases and all other sums due or to become due under
 
 
 
 

 
 
and pursuant thereto; together with any and all guarantees under any of said Leases; together with all proceeds payable under any policy of insurance covering loss of rents for any cause; together with all rights, powers, privileges, options and other benefits of the Mortgagor, as lessor or sublessor, under the Leases, including, but not limited to:  (i) the immediate and continuing right to receive and collect all rents, income, revenues, issues, profits, condemnation awards, moneys and security payable or receivable under the Leases, or pursuant to any of the provisions thereof, whether as rent or otherwise, and (ii) the right to make all waivers and agreements, to give and to receive all notices, consents and releases, to take such action upon the happening of a default under any Lease, including the commencement, conduct and consummation of proceedings at law or in equity as shall be permitted under any provision of any Lease or by law, and to do any and all other things whatsoever which the Mortgagor is or may become entitled to do under the Leases; and together with all other rights, powers, privileges, options and benefits of the Mortgagor in connection with the Real Property, including, but not by way of limitation, building permits, zoning variances, plans, specifications and contracts with architects.
 
3.02                       Remedies .  If an Event of Default shall occur, the Mortgagor consents to and irrevocably authorizes and directs the tenants under the Leases and any successors to the interest of the tenants, upon demand and notice from the Bank of the Bank’s right to receive the rents and other amounts under such Leases, to pay to the Bank the rents and other amounts due or to become due under the Leases, and the tenants shall have the right to rely upon such demand and notice from the Bank without any obligation or right to determine the actual existence of the Bank’s right to receive such rents and other amounts, notwithstanding any notice from or claim of the Mortgagor to the contrary.  The Mortgagor shall have no right or claim against any tenant for any such rents and other amounts so paid by the tenant to the Bank.
 
If any such Event of Default shall occur, the Bank shall, at its option, have the complete right, power and authority, to (i) enter upon, take and maintain possession of and operate the Mortgaged Property, or any part thereof, together with all documents, books, records, papers, and accounts relating thereto; (ii) exclude the Mortgagor, its agents and servants therefrom; and (iii) hold, operate, manage and control the Mortgaged Property, or any part thereof, as fully and to the same extent as the Mortgagor could do if in possession, and, in such event, without limitation and at the Mortgagor’s expense from time to time:
 
     (a)      Rent or lease the whole or any part of the Mortgaged Property for such term or terms and on such conditions as may seem proper to the Bank, including entering into leases for terms expiring beyond the maturity of the indebtedness secured by the Mortgage, and cancel any lease or sublease for any cause or on any ground which would entitle the Mortgagor to cancel it;

     (b)       Demand, collect, and receive from the tenant or tenants now or hereafter in possession of the Mortgaged Property, or any part thereof, or from other persons liable therefor, all of the rents and revenues from such tenant or tenants or other persons which may now be due and unpaid and which may hereafter become due;
 
     (c)      Institute and prosecute any and all suits for the collection of rents and all other revenues from the Mortgaged Property which may now be due and unpaid and which
 
 
 

 
 
may hereafter become due; institute and carry on all legal proceedings necessary for the protection of the Mortgaged Property, including such proceedings as may be necessary to recover the possession of the whole or of any part thereof; institute and prosecute summary proceedings for the removal of any tenant or tenants or other persons from the Mortgaged Property; and pay the costs and expenses of all such suits and proceedings out of the rents and other revenues received;

     (d)      Maintain the Mortgaged Property and keep it in repair, and pay, out of the rentals and other revenues received the costs of such maintenance and repairs, including the cost and expenses of all services of all employees, including their equipment, and of all expenses of maintaining and keeping the Mortgaged Property in repair and in proper condition;
 
     (e)      Employ an agent or agents to rent and manage the Mortgaged Property and to collect the rents and other revenues thereof, and pay the reasonable value of its or their services out of the rents and revenues received;

     (f)      Effect general liability insurance, fire insurance, boiler insurance, rent insurance, workers’ compensation law insurance, and generally such other insurance as is customarily effected by an owner of property of a style and kind similar to the Mortgaged Property, or as the Bank may deem advisable or necessary, and pay the premiums and other charges out of the rents and other revenues received;
 
     (g)      Pay, out of the rents and other revenues received, all sums, and the interest thereon, now due to the Bank under this Mortgage, the Credit Agreement or the other Related Documents and hereafter to become due, and all taxes, assessments, and other charges now due and unpaid and which may hereafter become due and a charge or lien upon the Mortgaged Property;
 
     (h)      Execute and comply with all applicable laws, rules, orders, ordinances, and requirements of any and all governmental authorities affecting the Mortgaged Property, and pay the costs thereof out of the rents and other revenues received;
 
     (i)      Act exclusively and solely in the place and stead of the Mortgagor, and to have all of the Mortgagor’s powers for the purposes stated above; and

     (j)      From time to time determine to which one or more of the above purposes the rents and revenues shall be applied and the amount to be applied thereto.

         After payment of all proper charges and expenses, including the just and reasonable compensation for the services of the Bank, its attorneys and agents and others employed by the Bank in connection with the operation, management and control of the Mortgaged Property, and such further sums as may be sufficient to indemnify the Bank from and against any liability, loss or pursuance of its rights and powers under this Section 3.02, the Bank may, at its option, credit the net amount of income which the Bank may receive by virtue of this assignment and from the Mortgaged Property to any and all amounts due or owing to the Bank from the Mortgagor under the
 
 
 

 
 
terms and provisions of the Bond Documents, the Credit Agreement, this Mortgage and the other Related Documents.  The balance of the net income shall be released to or upon the order of the Mortgagor.
 
The Bank’s acceptance of this Mortgage, with all the rights, powers, privileges and authority created under this assignment, shall not, prior to entry upon and taking possession of the Mortgaged Property by the Bank, be deemed or construed to constitute the Bank a mortgagee in possession, or thereafter or at any time or in any event impose any obligation whatsoever upon the Bank to appear in or defend any action or proceeding relating to any Lease or the Mortgaged Property, or to take any action hereunder, or to expend any money or incur any expenses, or to perform or discharge any obligation, duty or liability under any Lease, or to assume any obligation or responsibility for any security deposits or other deposits delivered to Mortgagor by any tenant and not assigned and delivered to the Bank, or render the Bank liable in any way for any injury or damage to person or property sustained by any person or persons, firm or corporation in or about the Mortgaged Property.
 
The Mortgagor agrees that the collection of rents and the application as stated above or the entry upon and taking of possession of the Mortgaged Property, or any part thereof, by the Bank shall not cure or waive any default or waive, modify or affect any notice of default under the Bond Documents, the Credit Agreement or any other Related Document, or invalidate any act done pursuant to such notice, and the enforcement of such right or remedy by the Bank, once exercised, shall continue for so long as the Bank elects so long as an Event of Default exists.  If the Bank elects to discontinue the exercise of any such right or remedy, the same or any other right or remedy under this Mortgage may be reasserted at any time and from time to time following any subsequent default.
 
3.03                       Right of Mortgagor .  Notwithstanding anything in this Mortgage, so long as no Event of Default shall have occurred and continue uncured, the Mortgagor shall have the right to occupy the Mortgaged Property as landlord or otherwise, to collect, use, and enjoy the rents, issues, profits, and other sums payable under and by virtue of all Leases and to enforce the covenants of all Leases, it being agreed that the assignment made hereby is for collateral purposes only, and is conditioned upon the occurrence and continuance of an Event of Default hereunder or under the Bond Documents or the Credit Agreement.
 
Mortgagor hereby covenants and agrees that Mortgagor shall not, without Bank’s prior written consent:  (a) accept any payment of any installment of rent more than two (2) months in advance of the due date therefor; or (b) enter into any management agreement.  Mortgagor further covenants and agrees that Mortgagor shall, at its sole cost and expense:  (a) promptly abide by, discharge and perform in all material respects all of the covenants, conditions and agreements contained in all Leases, on the part of the landlord thereunder; (b) enforce or secure the performance of all of the material covenants, conditions and agreements contained in any Lease on the part of any tenant thereunder; and (c) appear in and defend any action or proceeding arising out of or related to such Leases or the obligations, duties or liabilities of the landlord or of any tenants thereunder.
 
 
 
 

 

 
3.04                       Bank Not to Become Liable .  Prior to entry upon and taking possession of the Mortgaged Property by the Bank, the Bank and its assigns shall not be obligated to perform or discharge, nor do such parties hereby undertake to perform or discharge, any obligation, duty, or liability of the Mortgagor under any Lease.  Prior to entry upon and taking possession of the Mortgaged Property by the Bank, this Article shall not operate to place upon the Bank or its assigns responsibility for the control, care, management or repair of the Mortgaged Property or for the performance of any of the terms and conditions of any Lease.  The Bank and its assigns shall not be responsible or liable for any waste committed on the Mortgaged Property, for any dangerous or defective condition of the Mortgaged Property, for any negligence in the management, upkeep, repair or control of the Mortgaged Property or for failure to collect any rents or other payments under the Leases, except for such acts or conditions as shall occur while the Mortgaged Property is in the control of the Bank pursuant to Section 3.02 hereof.
 
3.05                       Waiver of Mortgagor .  To the fullest extent permitted by law, the Mortgagor hereby waives any and all claims against the Bank and its assigns arising out of or in any way related to any act or failure to act pursuant to this assignment, it being expressly understood and agreed that this assignment of leases is for collateral purposes only, imposes no obligation on the Bank or its assigns to take any action whatsoever and any action to enforce this assignment is in the sole discretion of the Bank or its assigns.


ARTICLE IV
COVENANTS OF MORTGAGOR
 
So long as any of the Bonds remain outstanding, and so long as any of the Secured Obligations remain outstanding, the Mortgagor agrees that Mortgagor shall abide by each of the following covenants:
 
4.01                       Payment of Principal and Interest .  Mortgagor shall duly and punctually pay or cause to be paid all amounts under this Mortgage, the Bond Documents, the Credit Agreement and any other Related Document when due, and promptly pay any penalties or other assessments that may be made, and timely comply with and carry out all of the covenants and agreements set forth in the Credit Agreement and the other Related Documents.
 
4.02                       Insurance; Damage or Destruction .

(a)           The Mortgagor shall provide and maintain or cause to be maintained at all times the insurance required under the Credit Agreement.  No insurance policy shall be cancelable or subject to reduction of coverage or modification except after thirty (30) days’ prior written notice to the Bank.  All insurers providing such policies shall have an A. M.  Best’s policyholder rating of at least B and a financial size rating of at least Class X.  At least ten (10) days prior to the expiration of Mortgagor’s policies, Mortgagor shall furnish the Bank with renewals or “binders” therefor or the Bank may order such insurance and charge Mortgagor for the cost thereof.
 
 
 

 
     (b)      Mortgagor shall give the Bank prompt notice of any damage or destruction to the Mortgaged Property.  All proceeds of insurance under such policies (except liability insurance and except in the case of any particular casualty resulting in a loss payment not exceeding $10,000 in the aggregate) shall be paid to the Bank, and all such policies shall provide that the proceeds of such insurance (except in the case of any particular casualty resulting in loss payment not exceeding $10,000 in the aggregate) shall be paid to the Bank as its interest may appear, by means of a standard mortgagee clause.  In case of loss exceeding $10,000, the Bank (or after entry of judgment of foreclosure, the purchaser at the sale) is hereby authorized, to either (i) settle or adjust any claim under such insurance policies without the consent of Mortgagor or (ii) allow Mortgagor to agree with the insurance company or companies on the amount to be paid upon the loss.

(c)      In the event of an Insured Casualty, and:

         (i)      If, (A) (1) the Insured Casualty occurred prior to the final completion of the Project, or (2) in the reasonable judgment of the Bank, the Mortgaged Property can be restored to an economic unit not less valuable than the same was prior to the Insured Casualty, and (B) the insurance proceeds are sufficient to adequately secure the outstanding balance of the indebtedness hereby secured, then, if no Event of Default as hereinafter defined shall have occurred and Mortgagor shall not be in default hereunder, the proceeds of insurance shall be applied to reimburse Mortgagor for the cost of restoring, repairing, replacing or rebuilding the Mortgaged Property or part thereof subject to the Insured Casualty, as provided for in Section 4.02(d) hereof; and Mortgagor hereby covenants and agrees, not later than ninety (90) days after the date of the Insured Casualty, to commence and to diligently prosecute such restoring, repairing, replacing or rebuilding; provided, always, that Mortgagor shall pay all costs of such restoring, repairing, replacing or rebuilding in excess of the proceeds of insurance.

         (ii)      Except as provided in Section 4.02(c)(i), the Bank may apply the proceeds of insurance consequent upon any Insured Casualty upon the indebtedness hereby secured, in such order or manner as the Bank may elect.  No prepayment penalty shall be due on insurance proceeds applied to the indebtedness.

         (iii)      In the event that proceeds of insurance, if any, shall be made available to Mortgagor for the restoring, repairing, replacing or rebuilding of the Mortgaged Property, Mortgagor hereby covenants to restore, repair, replace or rebuild the same to be of at least equal value, and in the same character and of the same quality as prior to such damage or destruction; all to be effected in accordance with plans and specifications to be first submitted to and approved by the Bank.

     (d)      In the event Mortgagor is entitled to reimbursement out of insurance proceeds held by the Bank, such proceeds shall be disbursed from time to time upon the Bank being furnished with satisfactory evidence: of the estimated cost of completion of the restoration, repair, replacement and rebuilding; that funds of Mortgagor (or assurances satisfactory to the Bank that such funds are available) when combined with the proceeds of
 
 
 
 

 
 
insurance, to complete the proposed restoration, repair, replacement and rebuilding; and with such architect’s certificates, waivers of lien, contractor’s sworn statements and such other evidences of cost and of payment as the Bank may reasonably require and approve; and the Bank may, in any event, require that all plans and specifications for such restoration, repair, replacement and rebuilding be submitted to and approved by the Bank prior to the commencement of work.  No payment made prior to the final completion of the restoration, repair, replacement or rebuilding shall exceed ninety percent (90%) of the value of the work performed from time to time; funds other than proceeds of insurance shall be disbursed prior to disbursement of such proceeds; and at all times the undisbursed balance of such proceeds remaining in the hands of the Bank, together with funds deposited for the purpose of completing the restoration, repair, replacement or rebuilding are irrevocably committed to the satisfaction of the Bank by or on behalf of Mortgagor for the purpose, shall be at least sufficient in the reasonable judgment of the Bank to pay for the cost of completion of the restoration, repair, replacement or rebuilding, free and clear of all liens or claims for lien.  Interest shall be allowed to Mortgagor on account of any proceeds of insurance or other funds held by the Bank at the same rate being paid on the Bank’s money market accounts and shall be available for such restoration, repair, replacement or rebuilding.  Notwithstanding anything contained herein to the contrary, the Bank may, in its sole discretion, require that the administration of the restoration, repair, replacement and rebuilding, and the distribution of insurance proceeds be done pursuant to and in accordance with the Credit Agreement and Related Documents.
 
     (e)      All policies of insurance provided for in subsection (a) of this Section 4.02 shall be effective under a valid and enforceable policy or policies issued by an insurer of recognized responsibility licensed to do business in the State of Wisconsin, and shall be written in the names of Mortgagor and the Bank as their respective interests may appear. All casualty policies shall provide that the proceeds of such insurance shall be payable to the Bank pursuant to a standard mortgage clause to be attached to each such policy.  Mortgagor shall deposit with the Bank policies evidencing all such insurance or a certificate or certificates of the respective insurers stating that such insurance is in force and effect.
 
4.03                       Preservation and Maintenance of Mortgaged Property .  Mortgagor (a) shall not commit waste or permit impairment or deterioration of the Mortgaged Property, (b) shall not abandon the Mortgaged Property, (c) shall restore or repair promptly and in a good and workmanlike manner all or any part of the Mortgaged Property to the equivalent of its original condition, or such other condition as the Bank may approve in writing, in the event of any damage, injury or loss thereto, whether or not insurance proceeds are available to cover in whole or in part the costs of such restoration or repair, (d) shall keep the Mortgaged Property, including improvements, fixtures, equipment, machinery and appliances thereon in good repair and shall replace fixtures, equipment, machinery and appliances on the Mortgaged Property when necessary to keep such items in good repair, (e) shall comply with all laws, ordinances, regulations and requirements of any governmental body applicable to the Mortgaged Property, (f) if the Mortgaged Property is leased, shall generally operate and maintain the Mortgaged Property in a manner to ensure maximum rentals, and (g) shall give notice in writing to the Bank of and, unless otherwise directed in writing by the Bank, appear in and defend any action or proceeding purporting to affect the Mortgaged Property, the security of this Mortgage or the rights or powers of the Bank.  
 
 
 
 

 
 
Neither Mortgagor nor any other person shall remove, demolish or alter any improvement now existing or hereafter erected on the Mortgaged Property or any fixture, equipment, machinery or appliance in or on the Mortgaged Property except when incident to the replacement of fixtures, equipment, machinery and appliances with items of like kind.
 
4.04                       Condemnation Proceeds .  Mortgagor shall give the Bank prompt notice of any pending or threatened eminent domain proceeding of any part or all of the Mortgaged Property, including any damages to grade, and Mortgagor hereby assigns, transfers and sets over unto the Bank the entire proceeds of any award or claim for damages for any of the Mortgaged Property taken or damaged under the power of eminent domain.  If any such proceeding occurs prior to the final completion of the Project, the Bank shall, and in any event the Bank may elect to, apply (or hold for application when due) the proceeds of the award upon or in reduction of the indebtedness hereby secured then most remotely to be paid, whether due or not, or to require Mortgagor to restore or rebuild the Mortgaged Property in which event the proceeds shall be held by the Bank and used to reimburse Mortgagor for the cost of such rebuilding and restoring.  If Mortgagor is required or permitted to rebuild or restore the Mortgaged Property as aforesaid, such rebuilding or restoration shall be effected solely in accordance with plans and specifications previously submitted to and approved by the Bank, and proceeds of the award shall be paid out in the same manner as is provided in Section 4.02 for the payment of insurance proceeds towards the costs of rebuilding or restoration.  If the amount of such award is insufficient to cover the cost of rebuilding or restoration, Mortgagor shall pay such costs in excess of the award, before being entitled to reimbursement out of the award.  Any surplus which may remain out of the award after payment of such costs of rebuilding or restoration shall, at the option of the Bank, be applied (or held for application when due) on account of the indebtedness hereby secured, then most remotely to be paid or be paid to any other party entitled thereto.  Notwithstanding any taking by eminent domain, Mortgagor shall continue to pay interest on the entire principal sum secured until any such award or payment shall have been actually received by the Bank and any reduction in the principal sum resulting from the application by the Bank of such award or payment as hereinafter set forth shall be deemed to take effect only on the date of such receipt.  If, prior to the receipt by the Bank of such award or payment, the Mortgaged Property shall have been sold on foreclosure of this Mortgage, the Bank shall have the right to receive such award or payment to the extent of any deficiency found to be due upon such sale, with interest thereon at the then-applicable rate on the Bonds, whether or not a deficiency judgment on this Mortgage shall have been sought or recovered or denied, and of the reasonable attorneys’ fees, costs and disbursements incurred by the Bank in connection with the collection of such award or payment.  No prepayment penalty shall be charged on amounts received by the Bank pursuant to an award under the power of eminent domain.
 
4.05                       Expenses of Litigation .  If any action or proceeding be commenced, to which action or proceeding the Bank is or becomes a party or in which it becomes necessary to defend or uphold the lien of this Mortgage or the efficacy of any other Related Document, all sums paid by the Bank for the expenses of any litigation (including reasonable attorneys’ fees) to prosecute or defend the rights and lien created by this Mortgage or said Related Documents shall, on notice and demand, be paid by Mortgagor, together with the interest thereon at the rate on the Bonds and shall be a lien on the Mortgaged Property, prior to any right or title to, interest in or claim upon the Mortgaged Property subordinate to the lien of this Mortgage, and shall be deemed to be secured by this Mortgage.
 
 
 

 
4.06                       Compliance with Laws .  Mortgagor covenants, warrants and represents that the Mortgaged Property complies with the covenants and restrictions affecting the Mortgaged Property, with all applicable building and zoning laws, and Mortgagor shall at all times so own and use the same and take all steps necessary to assure such compliance at all times.  Mortgagor shall not initiate or acquiesce in any zoning reclassification, or seek any conditional use permit, without the Bank’s written consent.
 
4.07                       No Further Encumbrances .  Mortgagor represents and warrants to and covenants with the Bank, its successors and assigns that: (a) Mortgagor is the owner of a fee simple interest in the Mortgaged Property, subject only to the Permitted Liens; (b) this Mortgage is and shall remain a valid and enforceable lien on the Mortgaged Property to secure the performance of  the Secured Obligations, subject only to the Permitted Liens; and (c) it will forever warrant and defend to the Bank, its successors and assigns, the Mortgaged Property against all claims and demands whatsoever not specifically excepted in this Mortgage.  The Mortgagor will keep the Mortgaged Property free from all liens and encumbrances, whether inferior or superior to the lien of this Mortgage, except for the Permitted Liens.  Any person, firm or corporation taking a mortgage, lien or other encumbrance against the Mortgaged Property (except for those that are Permitted Liens) shall take the said lien subject to the rights of the Bank herein and the right of the Bank to amend, modify and supplement this Mortgage and the Related Documents and to extend the maturity of any indebtedness hereby secured, in each and every case without obtaining the consent of the holder of any such liens and without the lien of this Mortgage losing its priority over the rights of any such liens.
 
4.08                       Transfers .  Mortgagor may not transfer all or any part of its interest in the Mortgaged Property without the prior approval of the Bank.
 
4.09                       Leases .  Except for the lease of the Mortgaged Property to the Corporation, Mortgagor shall not lease any portion of the Mortgaged Property, except with the prior written approval of the Bank.  Mortgagor, at the Bank’s request and expense, shall furnish the Bank with copies of all executed leases now existing or hereafter made of all or any part of the Mortgaged Property.
 
4.10                       Use of Mortgaged Property .  Unless required by applicable law or unless the Bank otherwise agrees in writing, Mortgagor shall not allow changes in the use for which all or any part of the Mortgaged Property was intended at the time this Mortgage was executed.
 
4.11                       Protection of the Bank’s Security .  If Mortgagor fails to perform the covenants and agreements contained in this Mortgage, or if any action or proceeding is commenced which affects the Mortgaged Property or title thereto or the interest of the Bank therein, including, but not limited to, eminent domain, insolvency, code enforcement or arrangements or proceedings involving a bankrupt or decedent, then the Bank, at its option, may upon ten (10) days’ notice to Mortgagor (except where such notice would be extremely impractical) make such appearances, disburse such sums and take such action as the Bank deems necessary, in its sole discretion, to protect the Bank’s interest, including, but not limited to: (i) disbursement of attorneys’ fees; (ii) entry upon the Mortgaged Property to make repairs; or (iii) procurement of satisfactory insurance as provided in
 
 
 
 

 
 
Section 4.02 hereof.  Any amounts disbursed by the Bank pursuant to this Section 4.11, with interest thereon, shall become additional indebtedness of Mortgagor secured by this Mortgage.  Unless Mortgagor and the Bank agree to other terms of payment, such amounts shall be immediately due and payable and shall bear interest from the date of disbursement at the Default Rate unless such rate of interest exceeds applicable law, in which event such amounts shall bear interest at the highest rate which may be collected from Mortgagor under applicable law.  Mortgagor hereby covenants and agrees that the Bank shall be subrogated to the lien of any mortgage or other lien discharged, in whole or in part, by the indebtedness secured hereby.  Nothing contained in this Section 4.11 shall require the Bank to incur any expense or take any action hereunder.
 
4.12                       Inspection .  Mortgagor shall permit the Bank, and its duly authorized agents, experts, engineers and representatives, upon at least 24 hours’ prior notice, to make or cause to be made entries upon and inspections of the Mortgaged Property during normal business hours at all times during the term hereof.  Mortgagor shall assist the Bank in conducting all inspections and shall make access available to the Bank to all areas.
 
4.13                       Books and Records .  Mortgagor shall keep and maintain at all times at Mortgagor’s address stated in Section 8.06 of the Credit Agreement or upon ten (10) days’ prior notice to the Bank, at such other place as designated by Mortgagor within the State of Wisconsin, complete and accurate books of accounts and records adequate to reflect correctly the results of the operation of the Mortgaged Property and copies of all written contracts, leases and other instruments which affect the Mortgaged Property, including without limitation copies of all quotations, purchase orders and contracts obtained by Mortgagor in the course of designing and constructing the Project.  Such books, records, contracts, leases and other instruments shall be subject to examination and inspection at any reasonable time by the Bank, and the Bank may copy the same at the Bank’s expense, provided that the Bank may use and/or release such information only in connection with the administration or enforcement of this mortgage or the other Related Documents.  During the course of construction of the Project, Mortgagor shall furnish to the Bank, at the Bank’s request, written status reports detailing the progress of construction.
 
4.14                       Payment of Taxes and Assessments .  Mortgagor shall pay, before the same become delinquent, all real and personal property taxes, assessments (whether general or special), gas, electric, light, power, water and sewer charges, business, sales, use and occupation taxes, all permit and inspection fees, all license and occupation fees, and such other charges now or hereafter levied or assessed against the Mortgaged Property or any part thereof and, upon request, shall exhibit to the Bank receipts for the payment of such items, except to the extent and so long as the same are being contested in good faith by appropriate proceedings, with adequate reserves having been provided.
 
4.15                       Valid and Binding Agreement .  Mortgagor covenants and warrants that this Mortgage is a valid and enforceable obligation of Mortgagor in accordance with its terms and that the performance by Mortgagor of the terms hereof does not contravene any covenant in any agreement, indenture or other document affecting Mortgagor.

 
 

 
ARTICLE V
DEFAULT; ACCELERATION

If any one or more of the following events (herein designated as “ Events of Default ”) shall occur:
 
     (a)      Occurrence of an “Event of Default” (as therein defined) under any Bond Document, the Credit Agreement or any of the Related Documents or if a default occurs under any other agreement, document or instrument evidencing indebtedness of Mortgagor or any guarantor to the Bank;

          (b)      Violation by any Mortgagor of the covenants contained in Sections 4.07 and 4.08 hereof; or

     (c)      Default by Mortgagor in due observance or performance of any other covenant, condition or agreement on its part to be observed or performed pursuant to the terms and provisions of this Mortgage, if such default remains uncured upon a date  thirty (30) days following the mailing or delivery of notice thereof to Mortgagor;

then, and upon the happening of any such event, Mortgagor shall be deemed to have materially breached this Mortgage and the Bank may, at its option and without notice, notice being hereby waived by Mortgagor, declare the Secured Obligations to be forthwith due and payable, and upon such declaration all such amounts, together with interest accrued thereon, if any, shall become and be due and payable forthwith; and the Bank may thereupon proceed to protect and enforce its rights hereunder, under the Bond Documents, the Credit Agreement and other Related Documents by foreclosure proceedings or by other suit in equity, action at law, or other appropriate proceedings.


ARTICLE VI
REMEDIES

Upon the happening of an Event of Default, then and in every such case:
 
6.01                       Action or Suit .  The Bank may proceed to protect and enforce its rights by an action or actions at law or by a suit or suits in equity, either for the specific performance of any covenant or agreement contained herein, or for the foreclosure of this Mortgage, or for monetary damages, or for the enforcement of any other appropriate legal or equitable remedy.
 
6.02                       Receiver .  The Bank shall be entitled as a matter of right, without notice and without giving bond to Mortgagor, or anyone claiming under it, to have a receiver appointed for the Bank’s benefit of all of the Mortgaged Property and of the earnings, income, rents, issues and profits thereof, pending such proceedings, with the powers (without limitation) to collect such earnings, income, rents, issues and profits; to rent and remodel the rentable areas; to perform and pay any obligations of Mortgagor under the Bond Documents, the Credit Agreement and the other Related Documents; together with such other powers as the court making such appointment shall confer; and Mortgagor hereby irrevocably consents to such appointment.
 
 
 

 
6.03                       Entry Upon the Mortgaged Property .  The Bank, either itself or by its agents or attorneys, may, in its discretion, enter upon and take complete and peaceful possession of the Mortgaged Property, or any part or parts thereof, and may exclude Mortgagor and its agents and servants wholly therefrom, in which case Mortgagor covenants peacefully and quietly to yield up possession, and having and holding the Mortgaged Property or portion thereof, the Bank may use, operate, manage and control the Mortgaged Property, or any part thereof, and conduct the business thereof (either itself or by its attorneys and agents), and may collect any and all rents, issues and profits due or to become due without prejudice to its rights to foreclosure, to appointment of a receiver and other rights and from time to time, either by purchase, repair or construction may maintain, restore and insure and keep insured, the buildings, structures, improvements, fixtures, machinery, equipment and other property constituting a part of or used in connection with the Mortgaged Property; and after paying all of the expenses of operating the Mortgaged Property, the Bank shall apply the monies arising therefrom to the payment of the Secured Obligations.
 
6.04                       Foreclosure .  The Bank may cause the Mortgaged Property to be sold at one or more foreclosure sales, all in such manner and upon such notice as provided by law.  All proceeds of any such sale or sales, remaining after payment of: (a) the costs and expenses of such sale or sales (including attorneys’ fees of the Bank); and (b) the Secured Obligations, shall be paid to Mortgagor, their respective successors and assigns, or to whomsoever may be lawfully entitled to receive the same.  Notwithstanding anything contained herein to the contrary, it is understood and agreed that the Bank may foreclose this Mortgage without declaring the whole indebtedness evidenced by the Bond Documents, the Credit Agreement and the other Related Documents and intended to be secured hereby due; and, if any foreclosure sale is made because of an Event of Default for less than the full amount which may become due under the Bond Documents, the Credit Agreement and the other Related Documents, such sale may be made subject to the unmatured portion of the indebtedness secured by this Mortgage and such sale, if so made, shall not in any manner affect the unmatured portion of the indebtedness intended to be secured by this Mortgage but as to such unmatured portion of the debt to be secured, several sales may be made for any other portion of the indebtedness to be secured, whether matured at the time or subsequently occurring.
 
6.05                       Costs of Foreclosure .  If it becomes necessary for the Bank to commence proceedings to foreclose this Mortgage or to commence any other suit in equity, action at law or other appropriate proceedings, to enforce its rights under this Mortgage, the Bond Documents, the Credit Agreement, or any of the other Related Documents, Mortgagor agrees to pay to the Bank all costs of such suit, action or proceeding as well as all expenses incurred in procuring title insurance and the reasonable fees of the Bank’s attorneys in connection therewith, which costs and fees shall be included in the judgment in any such suit, action or proceeding.
 
6.06                       Remedies Cumulative .  No remedy herein conferred upon or otherwise available to the Bank is intended to be or shall be construed to be exclusive of any other remedy or remedies; but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder, or now or hereafter existing at law or in equity or by statute.  No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein.

 
 

 
ARTICLE VII
SECURITY AGREEMENT; FIXTURE FILING
 
7.01                       Security Agreement; Fixture Filing .  This Mortgage shall create a security interest in, and the Mortgagor hereby grants to the Bank a security interest in, the Mortgaged Property in favor of the Bank and shall constitute a Security Agreement under the Uniform Commercial Code of Wisconsin with respect to all of the Mortgaged Property, and the Bank shall be entitled to all of the rights of a secured party.  This Mortgage is a financing statement covering the Fixtures, and it is intended that as to those goods and the proceeds thereof, this Mortgage shall be effective as a financing statement filed as a fixture filing from the date of its filing for record in the real estate records for the county in which the Mortgaged Property is located.  It is expressly agreed that during the continuance of an Event of Default the Bank shall proceed to dispose of any portion of the Property in accordance with the provisions of the Uniform Commercial Code, ten (10) days’ notice by the Bank to the Mortgagor shall be deemed to be reasonable notice under any provision of the Uniform Commercial Code requiring such notice; provided, however, that the Bank may, at its option, dispose of the Property in accordance with the Bank’s rights and remedies in respect to the real estate pursuant to the provisions of this Mortgage in lieu of proceeding under the Uniform Commercial Code.  The Mortgagor will, from time to time and as often as requested by the Bank, execute and deliver to the Bank such financing statements, renewal affidavits, continuation statements, inventories or other similar documents as the Bank may reasonably request to perfect the security interest created hereby, and Mortgagor authorizes Bank to make such filings.  No failure or omission of the Bank to request any financing statement, renewal affidavit, continuation statement, inventory, or the like, and no failure or omission of the Mortgagor to execute or deliver any thereof, will impair the effectiveness of or priority of the security interest created by this Mortgage.  The Mortgagor will pay all costs of filing and/or recording of this Mortgage and any financing statements, continuation or termination statements with respect thereto, and any affidavits or other instruments executed, or to be executed, to perfect, renew, continue or maintain the lien and security interest created hereby.  The Mortgagor hereby appoints the Bank, or any officer of the Bank, as the agent and attorney-in-fact of the Mortgagor to do, at the Bank’s option and the Mortgagor’s expense, all acts and things reasonably necessary to perfect, and continue perfected, the lien and security interest created hereby.  In the event of foreclosure sale of personal property in which the Bank holds a security interest granted herein, whether such sale be held by the Bank or otherwise, such sale may be of the whole of such property or any portion thereof and may be held together with or separately from any foreclosure sale of the real property securing said indebtedness.  Such personal property need not be present at the place of sale.

ARTICLE VIII
GENERAL
 
8.01                       Notices .  Any notice required or permitted to be delivered hereunder by either party to the other shall be governed by, and delivered in accordance with Section 8.06 of the Credit Agreement.
 
8.02                       Governing Law .  This Mortgage shall be construed and enforced according to the internal laws of the State of Wisconsin.
 
 
 

 
8.03                       Successors and Assigns; Partial Invalidity .  All covenants and agreements in this Mortgage contained by or on behalf of either of the parties hereto shall be binding upon and shall inure to the benefit of the respective successors and assigns of Mortgagor and the Bank.  Invalidation of part or all of any one of the covenants herein contained by judgment or court order shall not affect any of the other provisions, which shall remain in full force and effect.
 
8.04                       Mortgagor and Lien Not Released .  From time to time, the Bank may, at its option, without giving notice to or obtaining the consent of Mortgagor, Mortgagor’s successors or assigns or of any junior lienholder or guarantors, without liability on the Bank’s part and notwithstanding Mortgagor’s breach of any covenant or agreement of Mortgagor in this Mortgage, extend the time for payment of the indebtedness evidenced by the Bond Documents, the Credit Agreement and any of the other Related Documents or any part thereof, reduce the payments thereon, release anyone liable on any of said indebtedness, modify the terms and time of payment of said indebtedness, release from the lien of this Mortgage any part of the Mortgaged Property, take or release other or additional security, reconvey any part of the Mortgaged Property, consent to any plat or plan of the Mortgaged Property, consent to the granting of any easement, join in any extension or subordination agreement and agree in writing with Mortgagor to modify the terms or conditions of Bond Documents, Credit Agreement and any of the other Related Documents or change the amounts payable thereunder.  Any actions taken by the Bank pursuant to the terms of this Section 8.04 shall not affect the obligation of Mortgagor or Mortgagor’s successors or assigns to pay the sums secured by this Mortgage and to observe the covenants of Mortgagor contained herein, shall not affect the guaranty of any person, corporation, partnership or other entity for payment of the indebtedness secured hereby and shall not affect the lien or priority of lien hereof on the Mortgaged Property.  Mortgagor shall pay the Bank a reasonable service charge, together with such title insurance premiums and attorneys’ fees as may be incurred at the Bank’s option, for any such action if taken at Mortgagor’s request.
 
8.05                       Forbearance by the Bank Not a Waiver .  Any forbearance by the Bank in exercising any right or remedy hereunder, or otherwise afforded by applicable law, shall not be a waiver of or preclude the exercise of any right or remedy.  The acceptance by the Bank of payment of any sum secured by this Mortgage after the due date of such payment shall not be a waiver of the Bank’s rights to either require prompt payment when due or all other sums so secured or to declare a default for failure to make prompt payment.  The procurement of insurance or the payment of taxes or other liens or charges by the Bank shall not be a waiver of the Bank’s right to accelerate the maturity of the indebtedness secured by this Mortgage, nor shall the Bank’s receipt of any awards, proceeds or damages under Section 4.02 or 4.04 hereof operate to cure or waive Mortgagor’s default in payment of sums secured by this Mortgage.
 
8.06                       Future Advances; Cross-Collateralization . This Mortgage shall also secure all present and future indebtedness and obligations of the Borrower to the Bank, and shall fully and completely cross-collateralize all such indebtedness and obligations.  This Mortgage shall also secure any and all future advances made by the Bank to Borrower, including all costs, taxes, assessments, insurance, expenses, and reasonable attorneys’ fees, together with interest thereon at the Default Rate set forth in the Credit Agreement, that the Bank may make, pay or incur under this Mortgage for the protection of the Bank or any of its rights in connection with the Property.  All of
 
 
 

 
 
the foregoing sums so secured shall be superior to the rights of the holder of any lien or encumbrance placed on the Mortgaged Property after the recording of this Mortgage.



[Signature Page Follows]

 
 
 

 

IN WITNESS WHEREOF, the Mortgagor has executed this Mortgage as of the date and year first above written.

M & W FIBERGLASS, LLC,
a Wisconsin limited liability company


By:     /s/ Jamie L. Mancl                                          
Jamie L. Mancl, its sole member

ACKNOWLEDGMENT


 
STATE OF WISCONSIN )  
  ss. 
_____________COUNTY )  
 
This instrument was acknowledged before me on the _____ day of February, 2007, by Jamie L. Mancl, known to me as its sole member of M & W Fiberglass, LLC, a Wisconsin limited liability company.

 

                                                                                    ______________________________________________
                                                                                          Notary Public, State of Wisconsin
My commission: _________________________________




This document was drafted by
and should be returned to:
Lisa R. Lange
Whyte Hirschboeck Dudek S.C.
One East Main St., Suite 300
Madison, WI 53703




[Signature Page of Mortgage]
 
 

 

EXHIBIT A

DESCRIPTION OF REAL PROPERTY


Lot 1 of Wood County Certified Survey Map No. 8590 recorded in Volume 29 of Survey Maps at Page 190, being part of the SE ¼ of the NE ¼ of Section 10, Township 22 North, Range 6 East, City of Wisconsin Rapids, Wood County, Wisconsin.

Tax Key No.:  Part of 34-09841 and Part of 34-09852
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A-1
 
 

 


 


 
 
 
 
 
 
EXHIBIT 10.8
 
INDUSTRIAL DEVELOPMENT REVENUE BONDS,
SECURITY AGREEMENT DATED FEBRUARY 28, 2007
 

 
 
 

 





SECURITY AGREEMENT

Dated as of February 28, 2007

By

ADVANCED FIBERGLASS TECHNOLOGIES, INC.

AND

M & W FIBERGLASS, LLC

In Favor Of:

NEKOOSA PORT EDWARDS STATE BANK





Relating to :

$4,000,000
City of Wisconsin Rapids, Wisconsin
Industrial Development Revenue Bonds, Series 2007A, 2007B and 2007C
(Advanced Fiberglass Technologies Project )




 
 
 

 

SECURITY AGREEMENT

 
THIS SECURITY AGREEMENT, dated as of February 28, 2007 (this “ Agreement ”), is made by and among ADVANCED FIBERGLASS TECHNOLOGIES, INC., a Wisconsin corporation (the “ Corporation ”) and M & W FIBERGLASS, LLC, a Wisconsin limited liability company (the “ LLC ,” and together with the Corporation, are referred to herein individually as a “ Debtor ” or collectively, “ Debtors ”), in favor of NEKOOSA PORT EDWARDS STATE BANK, as Trustee and as Original Purchaser (“ Bank ” or “ Secured Party ”).

RECITALS
 
A.           The City of Wisconsin Rapids, Wisconsin (the “ Issuer ”), will issue its Industrial Development Revenue Bonds, Series 2007A, 2007B and 2007C (Advanced Fiberglass Technologies Project) in the aggregate principal amount of Four Million Dollars ($4,000,000) (the “ Bonds ”), pursuant to a Bond Agreement dated as of February 28, 2007 (the “ Bond Agreement ”), by and between the Issuer, the Debtors, the Individual Borrowers (collectively, the Debtors and the Individual Borrowers are referred to herein as the “ Borrowers ”), Nekoosa Port Edwards State Bank, as trustee (the “ Trustee ”) and Nekoosa Port Edwards State Bank, as original purchaser (“ Original Purchaser ”).
 
B.           The proceeds derived from the issuance of the Bonds will be loaned to the Borrowers pursuant to the Bond Agreement, and used to finance a project consisting of (i) the construction of an approximately 70,000 square foot manufacturing facility to be located at 4400 Commerce Drive in the City of Wisconsin Rapids, Wisconsin (the “ Facility ”) to be owned by the LLC and operated by the Corporation; and (ii) the acquisition and installation of equipment at the Facility (collectively (i) and (ii) are referred to herein as the “ Project ”).
 
C.           To provide the funds to be loaned to the Borrowers for payment of the costs of the Project, the Issuer has contracted for the sale of the Bonds to the Original Purchaser, and the Original Purchaser has agreed to purchase such Bonds in reliance on Borrowers’ agreement to the terms and conditions set forth in that certain Credit Agreement dated as of February 28, 2007 by and among the Borrowers and the Original Purchaser (the “ Credit Agreement ”).
 
D.           It is a condition precedent to the Original Purchaser’s obligation to purchase the Bonds that the Debtors shall have executed and delivered this Security Agreement to the Bank to secure the Obligations (as defined in the Credit Agreement) and all other indebtedness (whether presently existing or hereafter arising) of the Borrowers to the Bank.

AGREEMENT
 
NOW, THEREFORE in consideration of the mutual agreements herein contained, the parties hereto agree as follows:


ARTICLE I
DEFINITIONS
 
1.01                Definitions .  All capitalized terms used herein and not otherwise defined below, shall have meanings assigned to them in the Credit Agreement.  The following terms used herein have the meanings defined below:
 
Accounts ” shall mean “accounts” as defined in Section 9-102 of the UCC, “instruments” and “chattel paper” as defined in Section 9-102 of the UCC, and, without limiting the generality of the foregoing, shall include:  (a) any and all rights to the payment of money or other forms of consideration of any kind now or hereafter owing or to be owing to Debtor (whether classified under the UCC as accounts, chattel paper, instruments, general intangibles, or otherwise) including, but not limited to, accounts receivable, letters of credit and the right to receive payment thereunder, chattel paper, tax refunds, insurance proceeds, contract rights, notes, drafts, instruments, documents, acceptances, and all other debts, obligations and liabilities in whatever form now or hereafter owing to Debtor, all guarantees, security and liens which secure payment of any of the foregoing, all of Debtor’s rights to goods, now owned or hereafter acquired by Debtor, sold (delivered, undelivered, in transit or returned) which may be represented thereby; and (b) all proceeds of any of the foregoing.
 
Architect’s Contract ”:  shall mean any contract for architectural services between Debtor and an architect or architectural firm for the design of the Project.
 
Chattel Paper ”: shall mean “chattel paper” as defined in Section 9-102(11) of the UCC.
 
Collateral ” shall mean and include all of Debtor’s respective right, title, and interest in and to the following, whether now owned or hereafter acquired and wherever located:

(a)     
Accounts;

(b)     
Chattel Paper;

(c)     
Commercial Tort Claims;

(d)     
Deposit Accounts;

(e)     
Documents;

(f)     
Equipment;

(g)     
Fixtures;

(h)     
General Intangibles;

(i)     
Goods;
 

 
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(j)     
Intellectual Property;

(k)     
Inventory;

(l)     
Investment Property;

(m)    
Letter-of-Credit Rights;

(n)     
All Debtor’s right, title and interest in and to all goods and other property, whether or not delivered (i) the sale or lease of which gives or purports to give rise to any Account including, but not limited to, all merchandise returned or rejected by or repossessed from customers or (ii) securing any Account, including all Debtor’s respective rights as an unpaid vendor or lienor, including stoppage in transit, replevin and reclamation with respect to such goods and other properties;

(o)     
All guaranties, mortgages on, or security interests in real or personal property, leases or other agreements or property securing or relating to any Account or other Collateral, or acquired for the purpose of securing and enforcing any item thereof;

(p)     
All documents of title, policies and certificates of insurance, securities, or other documents or instruments;

(q)     
All files, correspondence, computer programs, tapes, discs and related data processing software (owned by Debtor or in which Debtor has an interest) which contain information identifying or pertaining to any of the Collateral or any account debtor, or showing the amounts thereof or payments thereon or otherwise necessary or helpful in the realization thereon or the collection thereof;

(r)     
Any and all products and proceeds of any item of the foregoing (including, but not limited to, any claims to any items referred to in this definition, and any claims of Debtor against third parties for loss of, damage to, destruction of, or infringement of any or all the Collateral or for proceeds payable under or unearned premiums with respect to policies of insurance) in whatever form, including cash, negotiable instruments and other instruments for the payment of money, chattel paper, security agreements or other documents; and

(s)     
The Construction Collateral.
 
Commercial Tort Claims ” shall mean a “commercial tort claim” as defined under Section 9-102(13) of the UCC.
 
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Construction Collateral ” shall mean Debtor’s respective right, title, and interest in and under: (a) the Construction Contract, and all modifications, amendments, and additions thereto; (b) the Architect’s Contract, and all modifications, amendments, and additions thereto; (c) the Plans and Specifications; and (d) all permits, licenses, easements, approvals, surety bonds, contracts and agreements relating to the Project, to the extent assignable.
 
Construction Contract ” shall mean any construction contract between Debtor and any construction firm for the construction of the Project.
 
Copyrights ” shall mean all of the following now or hereafter owned by Debtor:  (i) all copyright rights in any work subject to the copyright laws of the United States or any other country, whether as author, assignee, transferee or otherwise; and (ii) all registrations and applications for registration or any such copyright in the United States or any other country, including registrations, recordings, supplemental registrations and pending applications for registration in the United States Copyright Office.
 
Deposit Accounts ” shall mean a “deposit account” as defined under Section 9-102(29) of the UCC.
 
Document ” shall mean a “document” as defined under Section 9-102(30) of the UCC.
 
Equipment ” shall mean “equipment” as defined in Section 9-102(33) of the UCC and, without limiting the generality of the foregoing, shall include: (a) all motor vehicles; (b) all accessions, attachments, substitutions and replacements (including spare parts) for any item described herein; (c) any other goods now owned or hereafter acquired by Debtor that do not constitute Inventory and which are used or bought for use primarily in business; and (d) all proceeds of any of the foregoing.
 
Event of Default ” shall have the meaning assigned to it in Section 7.01 of the Credit Agreement.
 
Fixtures ” shall mean “fixtures,” as defined in Section 9-102(41) of the UCC, installed on, or affixed to, the real property described on Schedule 1.01 attached hereto, or to the buildings or improvements situated thereon, and all proceeds of the foregoing.
 
General Intangibles ” shall mean “general intangibles” as defined in Section 9-102(42) of the UCC relating to any other Collateral, and shall include, without limiting the generality of the foregoing, all goodwill, inventions, designs, copyrights, trademarks, tradenames, patents, licenses, applications for any of the foregoing, government approvals, permits or authorizations for any of the foregoing, all contract rights, including all rights under the Construction Contract, the Architect’s Contract, or any other contract, permit, or other document or agreement pertaining to the construction of the Project.
 
Goods ” shall mean “goods” as defined in Section 9-102(44) of the UCC.
 
Intellectual Property ” shall mean all Patents, Trademarks, Copyrights, and Licenses.
 
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Inventory ” shall mean “inventory” as defined in Section 9-102(48) of the UCC and, without limiting the generality of the foregoing, shall include: (a) all goods held or intended for sale or lease by Debtor; (b) all documents evidencing and general intangibles relating to such goods; and (c) all proceeds of any of the foregoing.
 
Investment Property ” shall mean “investment property” as defined in Section 9-102(49) of the UCC and all dividends, distributions and rights in connection therewith and proceeds thereof.
 
Letter-of-Credit Rights ” shall mean a “Letter-of-credit right” as defined under Section 9-102(51) of the UCC.
 
Licenses ” shall mean any written agreement, now or hereafter in effect, granting to any third party any right to use any Patent, Copyright or Trademark now or hereafter owned by Debtor or which Debtor has the right to license, or any written agreement, now or hereafter in effect granting to Debtor any right to use any Patent, Copyright or Trademark owned by a third party.
 
Obligations ” shall mean: (a) all existing and future indebtedness of Borrowers to Secured Party, and any promissory notes taken in renewal, exchange or substitution thereof or therefor, including interest and premium on all the foregoing and all costs of collecting the same; (b) all of Borrower’s obligations and liabilities under the Credit Agreement and the other Related Documents, as the same may be amended from time to time; (c) all of Debtors’ obligations and liabilities hereunder; (d) all other debts, obligations and liabilities of Borrowers’ to or in favor of Secured Party, whether now existing or hereafter incurred or arising; and (e) all of Borrowers’ obligations and liabilities under the Bond Documents, as the same may be amended from time to time.
 
Patents ” shall mean all of the following now or hereafter owned by the Debtor:  (i) all letters patent of the United States or any other country, all registrations and records thereof, and all applications for letters patent of the United States or any other country, including registrations, records and pending applications in the United States Patent and Trademark Office or any similar offices in any other country; and (ii) all reissues, continuations, divisions, continuations-in-part, renewals or extensions thereof, and the inventions disclosed or claimed therein, including the right to make, use and/or sell the inventions disclosed or claimed therein.
 
Permitted Liens ” shall have the same meaning assigned to it in the Credit Agreement.
 
Plans and Specifications ” shall mean the drawings and specifications for the construction of the Project, and all revisions or amendments thereto.
 
Trademarks ” shall mean all of the following now or hereafter owned by Debtor:  (i) all trademarks, service marks, trade names, corporate names, company names, business names, fictitious business names, trade styles, trade dress, logos, other source or business identifiers, designs, and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all registration and recording applications filed in connection therewith, including registrations and registration applications in the United States Patent and Trademark Office, any State of the United States or any similar offices in any other
 
 
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country or any political subdivision thereof, and all extensions or renewals thereof; (ii) all goodwill associated therewith or symbolized thereby; and (iii) all other assets, rights and interests that uniquely reflect or embody such goodwill.
 
UCC ” shall mean the Uniform Commercial Code as adopted by, and as in effect in, the State of Wisconsin, as the same may be amended from time to time.

ARTICLE II
GRANT OF SECURITY INTEREST
 
2.01              Security Interest .   To secure the payment and performance of the Obligations and for other good and valuable consideration, receipt of which is hereby acknowledged, Debtor hereby mortgages, pledges and assigns all the Collateral to Secured Party, and grants to Secured Party a continuing security interest in all the Collateral.
 
2.02              Assignment .  To secure the payment and performance of the Obligations and for other good and valuable consideration, receipt of which is hereby acknowledged, Debtor assigns unto the Secured Party all of its right, title and interest in and to the Construction Collateral.  The Debtor agrees that the Secured Party does not assume any of the obligations or duties of Debtor under or with respect to the Construction Collateral unless and until the Secured Party shall have given any party thereto written notice that it has affirmatively exercised its right to complete or cause the completion of construction of the Project following the occurrence of an Event of Default.  In the event that the Secured Party does not personally undertake to complete construction of the Project, the Secured Party shall have no liability whatsoever for the performance of any of such obligations and duties.  For the purpose of completing the Project, the Secured Party may, in its absolute discretion, reassign its right, title and interest in the Construction Collateral upon notice to Debtor but without any requirement for Debtor’s consent.  The Debtor agrees that no material change in the terms of the Architect’s Contract or the Construction Contract shall be valid without the written approval of the Secured Party.

ARTICLE III
DEBTOR’S REPRESENTATIONS AND WARRANTIES

Each Debtor represents and warrants that:
 
3.01                Location of Chief Executive Offices and Principal Places of Business .  Each Debtor’s chief executive office and principal place of business and the books and records relating to the Collateral are located at the locations set forth on Schedule 3.01 .
 
3.02                Location of Collateral .  All Equipment and Fixtures are, or will be, located at the locations set forth on Schedule 3.02 .
 
3.03                Ownership of Collateral .  The Collateral owned by each Debtor is owned free of all encumbrances and security interests, except Permitted Liens.  Chattel paper constituting Collateral evidences a perfected security interest in the goods covered by it, free from all other encumbrances and security interests.  No financing statement (other than that filed by any secured party with
 
 
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respect to Permitted Liens) is on file covering the Collateral or any of it.  Debtor may grant the Security Interest in the Collateral owned by such Debtor.
 
3.04                Accounts .  Each Account and chattel paper constituting Collateral as of this date arose from the performance of services by such Debtor from a bona fide sale or lease of goods, which have been delivered or shipped to the account debtor, and for which such Debtor has genuine invoices, shipping documents or receipts.  Each Account constituting Collateral as of this date is genuine and enforceable against the account debtor according to its terms.  It, and the transaction out of which it arose, comply with all applicable laws and regulations.  The amount represented by such Debtor to Secured Party as owing by each account debtor is the amount actually owing and is not subject to setoff, credit, allowance or adjustment, except discount for prompt payment, nor has any account debtor returned the goods or disputed its liability.
 
3.05                No Defaults under Collateral .  There has been no default as of this date according to the terms of any Collateral and no step has been taken to foreclose the security interest it evidences or otherwise to enforce its payment, and as of this date, Debtor has no notice or knowledge which might impair the credit standing of any account debtor.
 
3.06                Filings .  Debtor shall ensure and warrant that fully executed (if applicable) financing statements containing a description of the Collateral will be filed of record in every governmental, municipal or other office in every jurisdiction located within the United States and its respective territories and possessions or such other analogous documents in other countries as are necessary to publish notice of and protect the validity of and to establish a valid and perfected security interest in favor of the Secured Party in respect of the Collateral in which a security interest may be perfected by filing a financing statement or analogous document in the United States and its political subdivisions, territories and possessions pursuant to the UCC or other applicable law in such jurisdictions or pursuant to applicable law in other countries, and no further or subsequent filing, refiling, recording, rerecording, registration or reregistration is necessary in any such jurisdiction, except as provided under applicable law with respect to the filing of continuation statements or other documents of similar effect.
 
3.07                Validity of Security Interests .  The Security Interest constitutes a valid and perfected security interest in all the Collateral in which a security interest may be perfected by filing a financing statement or analogous document in the United States and its political subdivisions, territories and possessions pursuant to the UCC or other applicable law in such jurisdictions.

ARTICLE IV
DEBTOR’S COVENANTS
 
From the date hereof, and thereafter until the Obligations are satisfied in full and Secured Party terminates the Security Interest, each Debtor covenants to Secured Party as follows:
 
4.01                Filing; Notification; Re-Filing . Debtor shall, at its sole cost and expense, take or cause to be taken all action which Secured Party may reasonably request and which may be necessary or desirable in order to ensure that the Security Interest will at all times remain a properly perfected, first-priority security interest (subject only to Permitted Liens) and to enable Secured
 
 
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Party to exercise or enforce rights hereunder, including, but not limited to:  (a) delivering to Secured Party, endorsed or accompanied by such instruments of assignment as Secured Party may specify, and stamping and marking, in such manner as Secured Party may specify, any and all chattel paper, instruments, letters and advices of credit, title certificates and documents evidencing or forming a part of the Collateral; and (b) executing and delivering or authorizing (as applicable) such financing statements, pledges, designations, hypothecations, notices and assignments, in each case in form and substance satisfactory to Secured Party, relating to the creation, validity, perfection, maintenance or continuation of the Security Interest under the UCC or other laws of the State of Wisconsin, the laws of such other state or states as Secured Party may from time to time reasonably request, and the laws of the United States of America.  In the event that any rerecording or refiling (or the filing of any statement of continuation or assignment of any financing statement) or any repledge or reassignment, or any other action, is required at any time to protect, preserve or maintain the Security Interest, Debtor shall, at its sole cost and expense, cause the same to be done or taken at such time and in such manner as may be necessary and as may be reasonably requested by Secured Party.
 
4.02                Ownership of Collateral . Debtor shall at all times be the sole owner of each and every item of Collateral owned by such Debtor, and shall defend the Security Interest and Debtor’s title to the Collateral at Debtor’s own expense.
 
4.03                Records and Inspections . Debtor shall at all times keep accurate and complete records of the Collateral owned by such Debtor, and permit Secured Party to enter upon the Debtor’s place or places of business at any time and from time to time during reasonable business hours, and without hindrance or delay, to inspect the Collateral and to inspect, audit, check and make extracts from and copies of the books, records, journals, orders, receipts and correspondence which relate to the Collateral or other transactions between the parties hereto and the respective general financial conditions of Debtor.
 
4.04                Change in Location, Name . Without giving Secured Party not less than thirty days’ prior written notice thereof, Debtor shall not: (a) move its chief executive office or the books and records relating to the Collateral from the location specified on Schedule 3.01 ; (b) except as permitted under Section 4.06, move any Equipment or Fixtures to a location other than those specified in Section 3.02; or (c) change its name, identity or organizational structure.
 
4.05                Maintenance of Collateral; Insurance . Debtor shall maintain all tangible items of Collateral in good repair and working condition.  Debtor shall procure and maintain insurance against loss, theft, destruction or damage to the Collateral for the full replacement value thereof, and business interruption, with such insurers as are acceptable to Secured Party, plus other insurance thereon in the amounts and against such risks as Secured Party may specify, and promptly deliver an original copy of each policy to Secured Party, with a standard lender’s loss payable clause in favor of Secured Party, as well as a clause requiring the insurer to provide Secured Party at least thirty days’ prior written notice of the cancellation, expiration, termination or any change in the coverage afforded under any such policy.
 
4.06                Disposition of Collateral . Debtor shall not sell, assign, transfer or otherwise dispose of any Collateral to anyone other than Secured Party, provided that, notwithstanding the foregoing,
 
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so long as no Event of Default has occurred, Equipment may be sold or disposed of if (a) in the reasonable judgment of Debtor it is obsolete or no longer useful in the conduct of Debtor’s business; or (b) in the ordinary course of business, provided that in each case the proceeds are used to acquire Equipment in substitution or replacement therefor and the Debtor provides the Secured Party with evidence satisfactory to the Secured Party that the Secured Party has a valid and enforceable first priority perfected lien with respect to each such replacement Equipment.
 
4.07                Compromise of Accounts .  Debtor shall not, except in the ordinary course of business and prior to an Event of Default, grant any extension of time for payment of any Account or compromise, compound or settle the same for less than the full amount thereof, or release wholly or partly any person liable for the payment thereof, or allow any credit or discount whatsoever thereon.
 
4.08                Liens .  Debtor shall not pledge, grant any liens on, or grant security interests in the Collateral, other than the Security Interest and Permitted Liens.  The Collateral shall not at any time be subject to any lien that is prior to, on a parity with, or junior to the Security Interest, other than Permitted Liens.
 
4.09                Covenants Regarding Patent, Trademark and Copyright Collateral .
 
           (a)       Debtor will, for each Patent, not do any act, or omit to do any act, whereby any Patent which is material to the conduct of Debtor’s business may become invalidated or dedicated to the public, and shall continue to mark any products covered by a Patent with the relevant patent number as necessary and sufficient to establish and preserve its maximum rights under applicable patent laws.
 
           (b)       Debtor will, for each Trademark material to the conduct of Debtor’s business, (i) maintain such Trademark in full force free from any claim of abandonment or invalidity for non-use, (ii) maintain the quality of products and services offered under such Trademark, (iii) display such Trademark with notice of federal or foreign registration to the extent necessary and sufficient to establish and preserve its maximum rights under applicable law and (iv) not knowingly use or knowingly permit the use of such Trademark in violation of any third party rights.
           (c)       Debtor will, for each work covered by a material Copyright, continue to publish, reproduce, display, adopt and distribute the work as necessary and sufficient to establish and preserve its maximum rights under applicable copyright laws.
           (d)       Debtor shall notify the Secured Party immediately if Debtor knows or has reason to know that any Patent, Trademark or Copyright material to the conduct of any business of Debtor may become abandoned, lost or dedicated to the public, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, United States Copyright Office or any court or similar office of any country) regarding Debtor’s ownership or any Patent, Trademark or Copyright, its right to register the same, or to keep and maintain the same.
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           (e)       In no event shall Debtor, either itself or through any agent, employee, licensee or designee, file an application for any Patent, Trademark or Copyright (or for the registration of any Trademark or Copyright) with the United States Patent and Trademark Office, United States Copyright Office or any office or agency in any political subdivision of the United States or in any other country or any political subdivision thereof, unless it promptly informs the Secured Party, and, upon request of the Secured Party, executes and delivers any and all agreements, instruments, documents and papers as the Collateral Agent may request to evidence the Secured Party’s security interest in such Patent, Trademark or Copyright of Debtor relating thereto or represented thereby, and Debtor hereby appoints the Secured Party its attorney-in-fact to execute and file such writings for the foregoing purposes, all acts of such attorney being hereby ratified and confirmed; such power, being coupled with an interest, is irrevocable until the Obligations are paid in full.
           (f)       Debtor will take all necessary steps that are consistent with the practice in any proceeding before the United States Patent and Trademark Office, United States Copyright Office or any office or agency in any political subdivision of the United States or in any other country or any political subdivision thereof, to maintain and pursue each material application relating to the Patents, Trademarks and/or Copyrights (and to obtain the relevant grant or registration) and to maintain each issued Patent and each registration of the Trademarks and Copyrights which is material to the conduct of the Debtor’s business, including timely filings of applications for renewal, affidavits of use, affidavits of incontestability and payment of maintenance fees, and, if consistent with good business judgment, to initiate opposition, interference and cancellation proceedings against third parties.
           (g)       In the event that any Collateral consisting of a Patent, Trademark or Copyright material to the conduct of Debtor’s business is believed infringed, misappropriated or diluted by a third party, the Debtor promptly shall notify the Secured Party after Debtor learns thereof and shall, if consistent with good business judgment, promptly sue for infringement, misappropriation, or dilution and to recover any and all damages for such infringement, misappropriation or dilution, and take such other actions as are appropriate under the circumstances to protect such Collateral.

ARTICLE V
SECURED PARTY’S REMEDIES
 
Upon the occurrence of an Event of Default:
 
5.01                UCC .  Secured Party shall have all rights provided to a secured party following a default under the UCC.
 
5.02                Setoff .  Secured Party may, without prior notice or demand, set off against any credit balance or other money held by or deposited with Secured Party, all or any part of the Obligations.
 
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5.03                Possession of Collateral .  Secured Party may, at any time and from time to time, with or without judicial process or the aid or assistance of others, enter upon any premises in which Collateral may be located and, without resistance or interference by either Debtor, take physical possession of any items of Collateral and maintain such possession on either Debtor’s premises or move the Collateral or any part thereof to such other places as Secured Party shall choose without being liable to either Debtor on account of any losses, damage or depreciation that may occur as a result thereof so long as Secured Party shall not breach the peace, dispose of all or any part of the Collateral on the premises of such Debtor, require such Debtor to assemble and make available to Secured Party at the expense of Debtors all or any part of the Collateral at any place and time designated by Secured Party, or to remove all or any part of the Collateral from any premises in which any part may be located for the purpose of effecting sale or other disposition thereof.
 
5.04                Notice to Account Debtors or Obligors .  Secured Party may:
 
           (a)      Notify, or require either Debtor or Debtors to notify, in writing any account debtor or other obligor with respect to any one or more of the Accounts to make payment to Secured Party or any agent or designee of Secured Party, at such address as may be specified by Secured Party;
           (b)       Direct any Debtor to hold all payments which they or it receives with respect to any one or more of the Accounts in trust for Secured Party, and Debtor shall so hold such funds without commingling them with other funds of Debtor and shall, in accordance with the direction of Secured Party, either (i) deliver the same to Secured Party, or any agent or designee of Secured Party, immediately upon receipt by Debtor in the identical form received, together with any necessary endorsements or (ii) immediately deposit them in a separate account maintained by Secured Party, or any agent or designee of Secured Party, in which only such payments and other proceeds of Collateral shall be deposited.  When any notice to make payments directly to Secured Party, or any such agent or designee, shall have been given pursuant to clause (i) above, Debtor shall no longer have any right to collect the affected Accounts.  If, notwithstanding the giving of any notice, any account debtor or other obligor shall make payment to Debtor, Debtor shall hold all such payments it receives in trust for Secured Party, without commingling the same with other funds of Debtor, and shall deliver the same to Secured Party, or any such agent or designee, immediately upon receipt by Debtor in the identical form received, together with any necessary endorsements.  Secured Party may settle or adjust disputes and claims directly with account debtors and other obligors of Debtor for amounts and on terms which Secured Party considers advisable.  Nothing herein contained shall be construed as requiring or obligating Secured Party, or any such agent or designee, to make any demand, or to make an inquiry as to the nature or sufficiency of any payment received by it, or to present or file any claim or notice or take any action with respect to any Accounts or the monies due or to become due thereunder or to take any steps necessary to preserve any rights against prior parties.  Secured Party shall not have any liability to any Debtor for actions taken in good faith pursuant to this Section 5.04.  All amounts received or deposited with Secured Party pursuant to this Section representing the proceeds of Accounts shall be applied to the payment of the Obligations, in such order as is set forth in Section 5.10 hereof.  Secured Party may, but shall not be obligated to, deliver any amounts received or deposited pursuant to this Section to a Debtor
 
 
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for use by such Debtor in the ordinary course of its business, but the Security Interest in any such proceeds delivered to such Debtor shall continue and shall not be affected by such delivery and such Debtor shall not commingle any proceeds so delivered with any of its other funds.
5.05                Appointment to Act for Debtors After an Event of Default .  Debtors, effective immediately upon the occurrence thereof and without the necessity of further action on the part of Secured Party, and until the Event of Default is waived in writing or cured to the sole satisfaction of Secured Party:
 
           (a)      Irrevocably authorize Secured Party, or any agent or designee of Secured Party, to perform any and all the acts that Secured Party is permitted to perform under any provision of this Agreement;
           (b)       Constitute and appoint Secured Party, or any agent or designee of Secured Party, as Debtors’ true and lawful attorney and agent, with full power of substitution, in the place and stead of Debtors and either in its own name or in the name of either Debtor:
 
 
(i)
to endorse either Debtor’s name on any checks, notes, acceptances, money orders, drafts or other forms of payment or security that may come into Secured Party’s possession;

 
(ii)
to sign either Debtor’s name on any invoice or bill of lading relating to any Accounts, on drafts against customers, on schedules and assignments of Accounts, on notices of assignment, financing and continuation statements and other public records, on verifications of accounts, on notices to or from customers and on any and all documents necessary to effectuate drawings under letters of credit;

 
(iii)
to notify the post office authorities to change the address for delivery of either Debtor’s mail to an address designated by Secured Party;

 
(iv)
to receive, open and dispose of all mail addressed to either Debtor; and

 
(v)
to send requests for verification of Accounts to customers or account debtors.
 
         and
           (c)       Ratifies and approves all actions taken pursuant to the foregoing power of attorney whether taken by Secured Party or by any other person or persons designated by Secured Party, and Secured Party will not be liable for any acts or omissions or for any error of judgment or mistake of fact or law other than those occasioned by Secured Party’s gross negligence or willful misconduct.  This power shall be deemed coupled with an interest and shall be irrevocable until the Obligations have been fully satisfied.  Secured Party may appoint such persons, firms or corporations as, in its sole discretion, it may determine, for
 
 
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the purpose of exercising any powers and taking any action permitted to be exercised or taken by Secured Party under or pursuant to any of the provisions of this Agreement.
 
5.06                No Election of Remedies . In addition to the foregoing remedies, Secured Party shall have all of the rights and remedies provided to the Secured Party by the Credit Agreement and the Related Documents.  No remedy herein conferred upon Secured Party is intended to be exclusive of any other remedy and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise.
 
5.07                No Marshalling .  Secured Party shall not be required to make any demand upon or pursue or exhaust any of its rights or remedies against either Debtor or others with respect to the payment of the Obligations, and shall not be required to marshall the Collateral or to resort to the Collateral in any particular order and all of the rights of Secured Party hereunder shall be cumulative.  To the extent that they lawfully may, each Debtor hereby agrees to waive and does hereby absolutely and irrevocably waive and relinquish the benefit and advantage of, and does hereby covenant not to assert against Secured Party, any valuation, stay, appraisement, extension or redemption laws now existing or which may hereafter exist which, but for this provision, might be applicable to any sale made under the judgment, order or decree of any court, or privately under the power of sale conferred by this Agreement or in respect of the Collateral.  To the extent they lawfully may, without limiting the generality of the foregoing, each Debtor hereby agrees that it will not invoke or utilize any law which might cause delay in, or impede, the enforcement of Secured Party’s rights under this Agreement, and hereby waives the same.
 
5.08                Assembly of Collateral .  Secured Party may, at its option, demand that either Debtor forthwith assemble at places selected by Secured Party, whether at such Debtor’s premises or elsewhere, and each Debtor hereby covenants forthwith so to assemble at its own expense, such items of the Collateral comprising part of the Collateral as are designated by Secured Party, and Secured Party shall have the right to enter upon the premises where such Collateral is located and take possession of all such Collateral or any part thereof and thereupon such Debtor’s rights to possession thereof shall absolutely cease and terminate.  Secured Party may proceed by appropriate court action or actions either at law or in equity to enforce performance by Debtors of the applicable covenants and provisions of this Agreement or to recover damages for the breach thereof.
 
5.09                Sale .  Any item of the Collateral may be sold for cash or other value in any number of lots at public auction or private sale without demand or notice (excepting only that the Secured Party shall give the Debtor owning such Collateral ten days’ prior written notice of the time and place of any public sale, or of the time after which a private sale may be made, which notice each Debtor and Secured Party hereby agree to be reasonable).  At any sale or sales of the Collateral (except at private sale) Secured Party may bid for and purchase the whole or any part of the property and rights so sold and, upon compliance with the terms of such sale, may hold, exploit and dispose of such property and rights without further accountability to such Debtor except for the proceeds of such sale or sales.  Debtor will execute and deliver, or cause to be executed and delivered, such instruments, documents, registration statements, assignments, waivers, certificates and affidavits, and supply or cause to be supplied such further information and take such further action as Secured Party shall require in connection with such sale.
 
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5.10              Application of Proceeds .  The proceeds of all sales and collections hereunder, and any other moneys (including any cash contained in the Collateral), the application of which is not otherwise herein provided for, shall be applied as follows:

 
                      First , to the payment of the reasonable costs and expenses of such collection, sale or other realization, and all expenses, and advances made or incurred by Secured Party in connection therewith;

 
                      Second , to the payment in full of the Obligations; and

 
                     Third , to the payment to the Debtors, or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds which relate to the Collateral.

As used in this Section 5.10, “proceeds” of Collateral shall mean cash, securities and other property realized in respect of, and distributions in kind of, Collateral, including any thereof received under any reorganization, liquidation or adjustment of debt of a Debtor or any issuer of or obligor on any of the Collateral.
 
5.11                Costs of Collection .  Debtors shall pay all costs and expenses which may be incurred by Secured Party with respect thereto, including reasonable attorneys’ fees, and all such sums shall be and become a part of the Obligations.
 
5.12                Grant of License to Use Patent, Trademark and Copyright Collateral .  For the purpose of enabling the Secured Party to exercise rights and remedies under Article V hereof at such time as the Secured Party shall be lawfully entitled to exercise such rights and remedies, each Debtor hereby grants to the Secured Party an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to either Debtor) to use, license or sub-license any of the Collateral now owned or hereafter acquired by each Debtor, and wherever the same may be located, and including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof.  The use of such license by the Secured Party shall be exercised, at the option of the Secured Party, upon the occurrence and the continuation of an Event of Default; provided that any license, sub-license or other transaction entered into by the Secured Party in accordance herewith shall be binding upon each Debtor notwithstanding any subsequent cure of an Event of Default.  The Secured Party agrees to apply the net proceeds received from any license as provided in Section 5.10 hereof.

ARTICLE VI
MISCELLANEOUS
 
6.01                Other Remedies .  In addition to and not in lieu of any other right or remedy Secured Party might have, Secured Party at any time and from time to time at its election may (but shall not be required to) do or perform or comply with or cause to be done or performed or complied with anything which Debtors may be required to do or comply with and Debtors shall reimburse Secured
 
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Party upon demand for any cost or expense which Secured Party may incur in such respect, together with interest thereon at the Default Rate.
 
6.02                Course of Dealing .  No course of dealing between either Debtor or Debtors and Secured Party shall operate as a waiver of any rights of it under this Agreement or in respect of the Collateral or the Obligations.  No delay or omission on the part of Secured Party in exercising any right under this Agreement in respect of the Collateral or any Obligations shall operate as a waiver of such right or any other right hereunder.  A waiver on any one occasion shall not be construed as a bar to waiver of any right and/or remedy on any future occasion.  No waiver, amendment to, or other modification of this Agreement shall be effective unless it is in writing and signed by Secured Party.
 
6.03                Discharge .  If Debtors shall absolutely and irrevocably pay in full and satisfy the Obligations and if all financial arrangements between Debtors and Secured Party shall have been terminated, then this Agreement and the rights hereby granted shall cease and be void, and at the request of Debtors, and at its expense, Secured Party shall release and discharge all the Collateral without recourse against Secured Party and to that end shall execute and deliver to Debtors, at Debtors’ own expense, such releases, reassignments, and other documents (or cause the same to be done) as Debtors shall reasonably request, and Secured Party shall pay over to Debtors any money and deliver to it any other property then held by it as Collateral (or cause the same to be done).  The receipt by Debtors of the Collateral so delivered shall be a complete and full acquittance therefor, and Secured Party shall thereafter be discharged from any liability or responsibility therefor.
 
6.04                Appointment as Attorney and Agent for Debtors with Respect to Security Interest .  Debtors hereby irrevocably appoint Secured Party, or any agent or designee of Secured Party, as their lawful attorney and agent, with full power of substitution, to execute and deliver, on behalf of and in the name of each Debtor, such financing statements, assignments, notices, and other documents and agreements as Secured Party may deem necessary for the purpose of the creation, perfection, maintenance, continuation, or enforcement of the Security Interest, under any applicable law.  Secured Party is hereby authorized to file on behalf of and in the name of  each Debtor, at Debtors’ expense, such financing statements, assignments, mortgages, notices, pledges and other documents and agreements in any appropriate governmental office.  The right is expressly granted to Secured Party, in its discretion, in those jurisdictions where the same is permitted, to file one or more financing statements under the UCC or the comparable uniform commercial code of any other jurisdiction signed only by Secured Party, naming Debtors as debtor and naming Secured Party, as secured party and indicating therein the types, or describing the items, of the Collateral.
 
6.05                Governing Law, etc. This Agreement shall be deemed to have been made in the State of Wisconsin and shall be governed by the internal laws of the State of Wisconsin, except to the extent that the UCC or the law of state in which the Collateral is located or deemed located shall apply to the perfection and enforcement of the Security Interest.  All terms which are used in this Agreement which are defined in the UCC shall have the same meanings herein as those terms do in the UCC unless this Agreement shall otherwise specifically provide.  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of any provision hereof.
 
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6.06                Notices . All notices, demands and communications provided for herein or made hereunder shall be delivered or mailed in the manner, and to the address for Debtors and Secured Party set forth in Section 8.06 of the Credit Agreement.
 
6.07                Savings Clause . In the event that any provision hereof shall be deemed to be invalid by reason of the operation of any law or by reason of the interpretation placed thereon by any court, this Agreement shall be construed as not containing such provision, but only as to such locations where such law or interpretation is operative, and the invalidity of such provision shall not affect the validity of any remaining provision hereof, and any and all other provisions hereof which are otherwise lawful and valid shall remain in full force and effect.








[Signature page follows]

 
 
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.
 
 
  ADVANCED FIBERGLASS TECHOLOGIES, INC. ,  a Wisconsin Corporation  
       
 
By:
/s/ Jamie L. Mancl  
    Jamie L. Mancl, President  
 
 
  M & W FIBERGLASS, LLC , a Wisconsin Limited Liability Company  
       
 
By:
/s/ Jamie L. Mancl  
    Jamie L. Mancl, its sole member  
 

The foregoing Agreement is hereby confirmed and accepted as of the date thereof.
 
  NEKOOSA PORT EDWARDS STATE BANK  
       
 
By:
/s/ Robb N. Sigler  
    Robb N. Sigler, President  
 
 
 
 
 
 
 


[Signature Page Security Agreement]  
 
 

 

SCHEDULE 1.01

Legal Description


Lot 1 of Wood County Certified Survey Map No. 8590 recorded in Volume 29 of Survey Maps at Page 190, being part of the SE ¼ of the NE ¼ of Section 10, Township 22 North, Range 6 East, City of Wisconsin Rapids, Wood County, Wisconsin.

Tax Key No.:  Part of 34-09841 and Part of 34-09852




 
 
 

 

SCHEDULE 3.01

Location of Chief Executive Offices and Principal Places of Business



2330 South 16th Street
Wisconsin Rapids, WI  54495

4400 Commerce Drive
Wisconsin Rapids, WI  54495


 
 
 

 

SCHEDULE 3.02

Location of Collateral

2330 South 16 th Street
Wisconsin Rapids, WI  54495

4400 Commerce Drive
Wisconsin Rapids, WI  54495
 
 
 
 
 


 
 


 
 
 
 
 
 
EXHIBIT 10.9
 
OPTION AGREEMENT DATED JUNE 18, 2008

 
 
 

 

OPTION AGREEMENT
 
THIS OPTION AGREEMENT (this " Agreement ") is made and entered into as of this 18 th day of June, 2008 (the “ Effective Date ”), by and between ADVANCED FIBERGLASS TECHNOLOGIES, INC., a Wisconsin corporation (" Buyer "), and M & W FIBERGLASS, LLC, a Wisconsin limited liability company (the " Company ").
 
RECITALS
 
WHEREAS, the Company owns (i) certain real estate, fixtures and improvements comprising approximately 14.263 acres of land and approximately 70,300 square feet of manufacturing and office space located at 4400 Commerce Drive, Wisconsin Rapids, Wisconsin, as more specifically described in Exhibit A attached hereto (the “ Property ”);
 
WHEREAS, the Company and Buyer are Co-Borrowers under that certain Bond Agreement by and between the Company, Buyer, City of Wisconsin Rapids, Jamie L. Mancl, Jennifer Mancl, and Nekoosa Port Edwards State Bank (the “Bank”) dated February 28, 2007  (the “ Bond Agreement ”);
 
WHEREAS, the Company has agreed to grant an option to Buyer, and Buyer has agreed to acquire an option from the Company, for Buyer to purchase the Property from the Company on the terms and conditions set forth in this Agreement.
 
NOW, THEREFORE, in consideration of the mutual covenants set forth in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Buyer agree as follows:
 
ARTICLE I
 
GRANT OF OPTION; OPTION FEE; PURCHASE PRICE
 
Section 1.1         Grant of Option .  Subject to the terms set forth in this Agreement, the Com­pany hereby grants to Buyer, and Buyer hereby accepts from the Company, an irrevocable and exclusive option to purchase the Property (the " Option ") on the terms set forth in this Agreement.
 
Section 1.2         Option Fee .  The Company acknowledges its receipt from Buyer of the amount of Two Thousand Five Hundred Dollars ($2,500) in cash (the " Option Fee ") as payment in full for the Option.  Buyer acknowledges and agrees that the Option Fee shall be non-refundable to Buyer except as provided herein.  If Buyer does not exercise the Option in accordance with Section 2.1 , then the Option Fee shall not be refunded to Buyer, and shall be retained by the Company, except that, if the Buyer reasonably determines, after due diligence, that the Property has such title defects that are both (A) not capable of being insured and (B) would be reasonably expected to materially affect the value of Property, then the Company promptly shall return the Option Fee to the Buyer.
 
 
 

 
Section 1.3         Purchase Price .  The purchase price for the Property shall be Four Million Five Hundred Thousand Dollars ($4,500,000)(the " Purchase Price ").  Buyer shall receive a credit at the closing against the Purchase Price for the Option Fee.
 
Section 1.4         Payment of Purchase Price .  If Buyer exercises the Option and proceeds to the closing, the Purchase Price (as adjusted for prorations) shall be paid by Buyer in the form of: (i) an assumption of the IRB Debt; (ii) cash at closing in the amount of Five Hundred Thousand Dollars ($500,000); and (iii) the balance in the form of a promissory note bearing interest at not more than twelve-month LIBOR as of the Closing Date plus 2.75%, payable in quarterly installments of principal and interest amortized over not more than 15 years with the unpaid principal balance due not more than seven years after the Closing Date, and otherwise on such other terms and conditions as the parties may agree. For purposes of this Agreement, “ IRB Debt ” means (i) all Obligations (as that term is defined under the Bond Agreement) of the Company under the Bond Agreement and (ii) all obligations of the Company under that certain Promissory Note dated February 28, 2007 in the principal amount of $75,000 issued to the City of Wisconsin Rapids.
 
Section 1.5         Assumption of IRB Debt .  At closing, Buyer shall assume and agree to perform all of the Company’s obligations under the IRB Debt arising from and after the closing and execute and deliver to the Company such undertaking and instruments as will be reasonably sufficient to evidence the assumption of obligations under this Section.   Except as expressly set forth herein, Buyer is not assuming any Liabilities of the Company, and all such Liabilities shall remain the sole responsibility of the Company.  For purposes of this Agreement, “ Liabilities ” means and includes any direct or indirect indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost, expense, obligation or responsibility, fixed or unfixed, known or unknown, asserted or unasserted, liquidated or unliquidated, secured or unsecured.
 
ARTICLE II
 
EXERCISE OF OPTION
 
Section 2.1         Exercise of Option .  Buyer shall exercise the Option, if at all, by delivering written notice thereof to the Company during the Exercise Period (as defined herein).  Any attempt by Buyer to exercise the Option after expiration of the Exercise Period, or by any means during the Exercise Period other than as set forth in this Section 2.1, shall be null and void and of no force or effect.  For purposes of this Agreement, " Exercise Period " shall mean the period of time commencing on the Effective Date and ending no later than 5:00 p.m. (Central Time) on the first anniversary of the Effective Date. “ Business Day ” means any day other than Saturday, Sunday or any federal legal holiday.
 
Section 2.2         Failure to Exercise Option .  Upon the expiration of the Exercise Period, (i) this Agree­ment shall terminate automatically and the Option shall be null and void and of no further force or effect without any further action by the parties, (ii) the Company shall retain the Option Fee and (iii) the Company and Buyer shall have no further rights or obligations under this Agreement.
 
 
 

 
Section 2.3         Disclosure Schedules .  If Buyer validly exercises the Option in accordance with Section 2.1, then the Company shall deliver to Buyer within fifteen (15) days following receipt of Buyer’s written notice of exercise schedules which identify any disclosures that are necessary to make the representations and warranties of the Company set forth in Article IV of this Agreement true and correct in all material respects (the “ Disclosure Schedules ”).   Notwithstanding anything to the contrary contained in this Agreement, it is understood and agreed that the obligations of Buyer to consummate and effect this Agreement and the transactions contemplated hereby shall be subject to, at or prior to closing, Buyer’s reasonable satisfaction with the form and substance of the Disclosure Schedules.  Buyer shall have until 5:00 p.m. (Central Standard time) on the tenth (10th) day following Buyer’s receipt of the Disclosure Schedules to provide written notice to the Company stating that it is not reasonably satisfied with the form and substance of the Disclosure Schedules and setting forth in reasonable detail the reasons why and the changes that would be necessary to make Buyer reasonably satisfied with the form and substance of the Disclosure Schedules.  Buyer’s failure to timely provide such notice shall be deemed to constitute Buyer’s irrevocable agreement that it accepts the Disclosure Schedules as initially provided to Buyer.  If Buyer timely provides such notice, the Company shall have five (5) Business Days to revise the Disclosure Schedules as requested by Buyer.  If the Company fails to revise the Disclosure Schedules as provided herein, Buyer may elect to (i) accept the Disclosure Schedules as modified, if at all, and proceed with the transaction, or (ii) terminate this Agreement by providing written notice to the Company.  If Buyer elects to terminate this Agreement as provided in this Section, the parties shall have no further obligations to one another under this Agreement.
 
ARTICLE III
 
CLOSING
 
Section 3.1         Closing Date and Place .  The date of the closing shall be mutually determined by the parties, but in any event shall be on or after: (i) the date that all conditions to such closing as set forth in this Agreement have been satisfied; and (ii) October 15, 2008 (the “Closing Date”).  The closing shall occur at the offices of Buyer or at such other location as the parties may otherwise agree in writing.
 
Section 3.2         Transfer of Title .  At the closing, the Company agrees to execute and deliver to Buyer a warranty deed in customary form conveying the Property, together with all rights and appurtenances therein, to Buyer free and clear of all liens and encumbrances, excepting Permitted Liens.  For purposes hereof,  “ Permitted Liens ” shall mean (a) liens for taxes not yet due and payable; (b) zoning, building codes and other land use laws regulating the use or occupancy of the Property; (c) easements, covenants, conditions, restrictions and other similar matters affecting title to the Property which do not or would not reasonably be expected to materially impair the use or occupancy of the Property; (d) any mortgage or lien securing the IRB Debt; (e) all matters which would be disclosed by an accurate survey of the Property which do not or would not reasonably be expected to materially impair the use or occupancy of the Property; and (f) liens set forth on the Disclosure Schedules.
 
Section 3.3         Expenses .  All expenses associated with the Property (excluding those expenses for which Buyer is otherwise responsible under the terms and conditions of that certain
 
 
 

 
 
Lease dated August 1, 2007 by and between the Company and Buyer), including, without limitation, expenses for electricity, gas, water, sewer, real property taxes and such other items that are customarily prorated in transactions of this nature, shall be ratably prorated between Buyer and the Company as of the Closing Date in accordance with local custom.
 
Section 3.4         Bank Consent .  Notwithstanding anything to the contrary contained in this Agreement, it is understood and agreed that the obligations of the Company to consummate and effect the transactions contemplated hereby shall be subject to, at or prior to closing, the Company having obtained any requisite consent, approval, and authorization of the Bank to consummate the transactions contemplated by this Agreement.
 
ARTICLE IV
 
TITLE DOCUMENTS
 
Section 4.1         Title Report .  The Company shall furnish and deliver to Buyer for examination within twenty (20) days of receipt of written notice of exercise of the Option a title report written by a title insurance company licensed by the State of Wisconsin, showing title as required under Section 3.2 of this Agreement.  Any objections to the condition of title shall be raised by Buyer in writing within five (5) days from delivery of the title report, following which the Company shall have ten (10) days in which to elect in writing whether to cure such objections to Buyer’s reasonable satisfaction.  In the event the Company does not elect to cure such objections or affirmatively elects not to cure the same, Buyer shall, within ten (10) days after the earlier of (a) receipt of the Company’s written election not to cure such objections or (b) expiration of the period within which the Company is entitled to make the foregoing election (in either case, the “ Election Deadline ”), have the option, exercisable by written notice to the Company, either to (x) terminate this Agreement, or (y) proceed to closing, taking title to the Property subject to the matters that the Company has elected not to cure.  The foregoing election by Buyer must be delivered to the Company within ten (10) days after Election Deadline.  The cost of the title report shall be paid by the Company.  In the event the Bank requires title insurance in connection with the closing, the Company shall, in place of the title report required pursuant to this Section, provide to Buyer a title insurance commitment for an owner’s policy of title insurance in an amount equal to the Purchase Price and naming the Bank as additional proposed insured.  The cost of the title insurance commitment and the title insurance policy issued with respect thereto, inclusive of full extended coverage (other than the survey exception), and inclusive of any endorsements issued with respect to title exceptions that do not constitute Permitted Liens, but exclusive of any Buyer-requested endorsements, shall be paid by the Company.  Any transfer fees payable in connection with the conveyances contemplated by this Agreement shall be paid by the Company.
 
ARTICLE V
 
REPRESENTATIONS OF THE COMPANY
 
The Company hereby represents and warrants to Buyer that the statements contained in this Article V , subject to the exceptions set forth in the Disclosure Schedules to be delivered by
 
 
 

 
 
the Company to Buyer as provided in Section 2.3 of this Agreement, are true and correct as of the date of this Agreement and will be true and correct on the Closing Date.  Each of the representations and warranties set forth herein shall survive the closing of the transaction contemplated by this Agreement.
 
Section 5.1         Organization and Authority .  The Company is a corporation duly organized, validly existing and in active status under the laws of the State of Wisconsin.  The Company has the corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby.  The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of the Company.  This Agreement has been duly and validly executed and delivered by the Company, and, assuming this Agreement constitutes a valid and binding obligation of Buyer, this Agreement constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms.
 
Section 5.2         No Violation .  Neither the execution and delivery of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby will (i) constitute a breach or violation of any provision of the articles of organization, bylaws or any operating agreement of the Company, as amended, (ii) constitute a breach, violation or default (or any event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of or permit any other party to terminate, require the consent from or the giving of notice to any other party to, or accel­erate the performance required by, or result in the creation of any Lien (other than Permitted Liens) upon the Property under, any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument to which the Company is bound, or (iii) conflict with or violate any order, judgment or decree, or any statute, ordinance, rule or regulation applicable to the Com­pany.  For purposes of this Agreement, " Lien " means any lien, security interest, pledge, charge, claim, mort­gage, easement, restriction or any other encumbrance.
 
Section 5.3         Title to the Property .  The Company has the power and the right to sell, assign and transfer the Property, and the Company will sell and deliver to Buyer, and upon consummation of the trans­actions contemplated by this Agreement, Buyer will acquire good and marketable title to the Property, free and clear of all Liens other than Permitted Liens.
 
Section 5.4         Environmental Conditions .  The Property is not in violation of any federal, state, or local law, ordinance or regulation relating to the environmental conditions on, under or about the Property, including, but not limited to, soil and ground water conditions, and the Company has not violated any environmental law now in existence with respect to the Property.
 
Section 5.5         Hazardous Materials .   During the time in which the Company has owned the Property, neither the Company nor, to the best of the Company’s knowledge, any third party has used, generated, manufactured, stored, released, or disposed of on, under, or about the Property or transported to or from the Property any flammable, explosive, radioactive materials, hazardous wastes, toxic substances, or related matters (“ Hazardous Materials ”), except in conformity with the requirements of any and all applicable laws, rules, regulations and ordinances regulating or governing the handling and disposal thereof.  For the purpose of this
 
 
 
 

 
 
Article V, Hazardous Materials shall include, but not be limited to, substances such as friable asbestos or those defined as “hazardous substances,” “hazardous materials,” or “toxic substances” in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.; the Hazardous Materials Transportation Act, 42 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq.; and in the regulations adopted and publications promulgated pursuant to said laws and any amendments thereto.  To the best of the Company’s knowledge, there are no Hazardous Materials stored, released, or disposed of (i) on, under, or about the Property, except in conformity with the requirements of any and all applicable laws, rules, regulations and ordinances regulating or governing the handling and disposal thereof, or (ii) on, under, or about adjacent properties, in such a manner that their migration to the Property appears reasonably likely.
 
Section 5.6       Zoning Laws; Permits .    To the best of the knowledge of the Company, no zoning, building, or similar law or ordinance is violated by the maintenance, operation, or use of the Property.  The Company has received no written notice of any change contemplated in any applicable laws, ordinances, or restriction, or any judicial or administrative action, or any action by adjacent landowners, or natural or artificial conditions upon the Property which would prevent, impede, limit, or render more costly in any material way Buyer’s use of the Property consistent with the historic usage thereof.  To the best of the knowledge of the Company, all approvals and permits necessary for the operation of the Property consistent with the historic usage thereof have been obtained, are in full force and effect, and are transferable to Buyer without consent or approval of any third party or governmental entity, and the Company will transfer and assign all such permits to Buyer at the closing.
 
Section 5.7         Eminent Domain .  There are no condemnation or eminent domain proceedings pending or, to the best of the Company’s knowledge, contemplated against the Property or any part thereof, and the Company has received no written notice of the desire of any public authority or other entity to take or use the Property or any part thereof.
 
Section 5.8         Lease .  There will be no leases or occupancy agreements for the Property or any part thereof which will survive the closing, unless accepted by Buyer.
 
Section 5.9         Service Contracts .  There will be no service contracts or use agreements affecting or benefiting the Property which will survive the closing, unless accepted by Buyer.
 
Section 5.10         Litigation .  There is no suit, claim, proceeding or investigation pending or, to the Company's knowledge, threatened against the Company which (i) would reasonably be ex­pected to prevent or delay the consummation of the transactions contemplated by this Agree­ment or (ii) would adversely affect title to the Property of any part thereof.  The Company is not a party to or bound by any outstanding order, writ, injunction or de­cree which would reasonably be expected to prevent or delay the consummation of the transactions contemplated hereby.
 
 
 
 

 
ARTICLE VI
 
MISCELLANEOUS PROVISIONS
 
Section 6.1         Time is of the Essence .  Time is of the essence as to all dates and dead­lines set forth in this Agreement; provided, however , that notwithstanding anything to the con­trary in this Agreement, if the time period for the performance of any covenant or obligation, satisfaction of any condition or delivery of any notice or item required under this Agreement shall expire on a day other than a Business Day, such time period shall be extended automati­cally to the next Business Day.
 
Section 6.2         Assignment Buyer shall have the right to designate an assignee to receive title to the Property by providing written notice to the Company at any time prior to closing; provided , however , that (i) Buyer shall not be released from any of its liabilities and obligations under this Agreement by reason of such designation or assignment, and (ii) such designa­tion shall not be effective until Buyer has provided the Company with a fully executed copy of such designation or assignment and assumption instrument, which shall be in form and substance reasonably satisfactory to the Company.
 
Section 6.3         Notices .  All notices, demands, consents, or other communications that are required or permitted hereunder or that are given with respect to this Agreement shall be in writing and shall be sufficient if personally delivered or sent by registered or certified mail, fac­simile message, or overnight delivery service.  Any notice shall be deemed given upon the earlier of the date when received at, or the fifth day after the date when sent by registered or certified mail or the day after the date when sent by overnight delivery service or facsimile to, the address or facsimile number set forth below, unless such ad­dress or facsimile number is changed by written notice to the other party in accordance with this Agreement:
 
(a)   if to Buyer, to:
 
                       Advanced Fiberglass Technologies, Inc.
                       4400 Commerce Drive
                       Wisconsin Rapids, WI 54494
                       Attn:  Sam Fairchild
                       Facsimile:  973-543-0005
 
with a copy to:
 
                       Advanced Fiberglass Technologies, Inc.
                       4400 Commerce Drive
                       Wisconsin Rapids, WI 54494
                       Attn:  Kenneth Iwinski
                       Facsimile:  715-421-2048
 
 
 

 
(b)   if to the Company, to:
 
M & W Fiberglass, LLC
4710 Black Forest Drive
Wisconsin Rapids, WI  54494
Attn:  Jamie L. Mancl
Facsimile:  ______________

with a copy to:
 
                       Haferman & Ilten
                       1525 Main Street
                       Stevens Point, WI  54481
                       Attn:  Mark O. Ilten, Esq
                       Facsimile:  715-342-9974
 
Section 6.4         Counterparts .  This Agreement may be executed in one or more counter­parts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.  Any counterpart may be executed and delivered by facsimile signature and such facsimile signature shall be deemed an original.
 
Section 6.5         Entire Agreement; Parties in Interest .  This Agreement and the documents and instruments and other agreements specifically referred to herein or deliv­ered pursuant hereto, including the Exhibits and Disclosure Schedules (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and (b) are not intended to confer upon any third party any rights or remedies hereunder.
 
Section 6.6         Expenses .  Except as otherwise provided in this Agreement, all costs and expenses incurred in connection with this Agree­ment and the transactions contemplated hereby (including, without limitation, the fees and ex­penses of its advisers, accountants and legal counsel), shall be paid by the party incurring such expense.
 
Section 6.7         Recording Fees .  Any fees or charges incurred in connection with the re­cording of this Option Agreement in the office of register of deeds shall be paid by the Buyer.
 
Section 6.8         Amendment .  This Agreement may not be amended, changed or modified except in writing signed by the parties hereto.
 
Section 6.9         Governing Law; Jurisdiction; Waiver of Jury Trial .  This Agreement shall be governed by and construed in accordance with the laws of the State of Wisconsin without re­gard to principles of conflicts of law.  EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY SUIT, ACTION OR OTHER PRO­CEEDING INSTITUTED BY OR AGAINST SUCH PARTY IN RESPECT OF ITS, HIS OR HER OBLIGATIONS HEREUNDER OR THE TRANSACTIONS CONTEMPLATED HEREBY.
 
 
 

 
Section 6.10         Further Actions .  Upon the terms and subject to the conditions hereof, each of the parties hereto shall (i) execute and deliver such other documents and in­struments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of this Agreement and the transactions contemplated hereby, and (ii) use its reasonable best efforts to obtain any consents, licenses, permits, waivers, approvals, au­thorizations or orders required to be obtained or made by Buyer or the Company or any of their subsidiaries in connection with the authorization, execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement.
 

[Signature Page Follows]

 
 

 

IN WITNESS WHEREOF, the Company and Buyer each have caused this Option Agreement to be executed and delivered in their names by their respective duly authorized offi­cers or representatives.
 
M & W FIBERGLASS, LLC     ADVANCED FIBERGLASS TECHNOLOGIES, INC.   
         
By:    /s/  Jamie L. Mancl                            
   
By:   /s/ Samuel Fairchild                                       
 
Name:     Jamie L. Mancl                            
   
Name:    Samuel Fairchild                                    
 
Title:    President                                         
   
Title:   Chief Executive Officer                          
 
         



[Signature Page to Option Agreement]
 

 

 
 

 

EXHIBIT A


Lot 1 of Wood county Certified Survey Map No. 8590 recorded in Volume 29 of Survey Maps at Page 190, being part of the SE ¼ of the NE ¼ of Section 1o, Township 22 North, Range 6 East, City of Wisconsin Rapids, Wood County, Wisconsin.

Tax Key No.: Part of 34-09841 and Part of 34-09852
 
 
 
 
 
 
 
 
 
 
 



 
 


 
 
 
 
 
 
 
 
 
 
 
EXHIBIT 10.10
 
Contract with FPF
 
 
 

 
 
 

 

PURCHASE AND SUPPLY AGREEMENT
 
THIS PURCHASE AND SUPPLY AGREEMENT (this “ Agreement ”) is made and entered into as of this 13 th day of October, 2008 (the “ Effective Date ”), by and between Advanced Fiberglass Technologies, Inc., a Wisconsin corporation (“ Purchaser ”) and Fiberglass Piping & Fitting Company, a Wisconsin corporation (“ Supplier ”).
 
RECITALS
 
WHEREAS, Supplier is a wholesale distributor of imported fiberglass piping and fitting products;
 
WHEREAS, Purchaser is in the business of manufacturing, marketing, selling, installing and servicing fiberglass products throughout the United States and serves the paper, oil, agricultural, ethanol and power industries; and
 
WHEREAS, Purchaser desires to purchase from Supplier, and Supplier desires to sell to Purchaser, fiberglass piping and fitting products upon the terms and subject to the conditions set forth in this Agreement.
 
NOW, THEREFORE, in consideration of the mutual covenants set forth herein, and other valuable and legally sufficient consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:
 
1.   Purchase and Sale.   Subject to the terms and conditions of this Agreement, during the term of this Agreement, Supplier shall sell and deliver to Purchaser, and Purchaser shall purchase and accept from Supplier, fiberglass piping and fitting products (the “ Products ”) in such quantities as may be requested by Purchaser from time to time.  Purchaser shall issue written purchase orders for all Products to be purchased hereunder.
 
2.   Term .  The initial term of this Agreement shall be for a period of three (3) years commencing on the Effective Date.  On the second anniversary of the Effective Date and thereafter on each anniversary of the Effective Date unless terminated as provided herein, this Agreement will automatically extend for an additional year such that the remaining term shall then be two (2) years.  In the event either party elects not to extend this Agreement as provided herein, that party shall deliver written notice thereof to the other party not less than 180 days prior to the anniversary date on which the term would otherwise be extended pursuant to this Section.  The election of either party not to extend the term shall not affect the then remaining term of this Agreement.
 
3.   Purchase Price .  The purchase price payable by Purchaser for the Products (the “ Purchase Price ”) shall be equal to Supplier’s net direct cost for such Products, including without limitation materials, packaging, third-party storage and handling fees, sales, use, excise and value added taxes, customs duties and other charges assessable or levied upon the Products, and freight to Supplier’s Wisconsin Rapids distribution facility.
 

 
 
 

 
 
4.   Delivery; Acceptance; Passage of Title .
 
(a)   Delivery; Shipping .  All Products purchased hereunder shall be delivered FOB – Supplier’s Wisconsin Rapids distribution facility or to such other location(s) as may be agreed in writing between the parties from time to time.  Supplier shall be responsible for packing and loading all Products onto a common or other carrier designated by Purchaser.  Purchaser shall be responsible for securing, scheduling and paying for all transportation of Products from Supplier’s Wisconsin Rapids distribution facility to Purchaser’s designated facility or designated ship to location.   Supplier shall pack or otherwise prepare the Products for shipment consistent with timely delivery, to meet carriers' requirements and to safeguard Products against damage.
 
(b)   Acceptance .  All Products purchased hereunder are subject to inspection and approval by Purchaser within a reasonable period following delivery.  Execution of a delivery receipt does not constitute acceptance of any Products.  Purchaser shall not be required to purchase and may reject any Products which are nonconforming, damaged or defective.  
 
(c)   Passage of Title .  Title and risk of loss of the Products shall automatically pass to Purchaser upon loading onto a common or other carrier designated by Purchaser.  Upon passage of title, Purchaser shall receive good title to Products, free and clear of all liens and encumbrances.
 
5.   Payment .  Supplier shall promptly issue invoices for the Products following delivery to Purchaser.  Payment terms for all Products purchased pursuant to this Agreement shall be net thirty (30) days from receipt of Supplier’s invoice.  All payments to Supplier shall be made in United States currency or cash equivalent and shall be payable in full without delay, set-off, reduction or discount.  Invoices may be delivered by email or facsimile transmission.  The balance of any invoice not paid when due shall accrue interest at the rate of 1.5% per month until paid.
 
6.   Taxes and Fees .  Any use, personal property, sales or excise tax, duty, custom, inspection or testing fee, or any other tax, fee or charge of any nature whatsoever imposed by any governmental authority, on Products sold or shipped by Supplier to Purchaser hereunder, or in the possession of Purchaser, shall be paid by Purchaser in addition to the Purchase Price.  In the event that Supplier pays any such tax, fee or charge, Purchaser shall reimburse Supplier upon invoice by Supplier.
 
7.   Warranties of Supplier; Limitations on Liability .
 
(a)   Warranties .  Supplier represents and warrants with respect to each delivery of Product as follows:
 
(1)   The Products conform to applicable specifications, are new, and are free from defects in materials and workmanship; and
 
-2-
 

 
(2)   The Products have been manufactured in compliance with the requirements of industry standard specifications and comply with all applicable laws.
 
(b)   Limitation of Warranties .  EXCEPT FOR THE LIMITED WARRANTIES SET FORTH IN THIS SECTION, SUPPLIER MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCTS, INCLUDING WITHOUT LIMITATION IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
 
8.   Records .  Purchaser or Purchaser’s representatives, including its independent public accountants, shall have the right, upon not less than five (5) days prior written notice to Supplier and during normal business hours, to review and copy, at Purchaser’s sole expense, all books and records of Supplier related to the net direct costs of the Products for the purpose of auditing, verifying or otherwise determining the Purchase Price of the Products (collectively, the “ Cost Records ”).  The Cost Records for each Product sold to Purchaser shall be retained by Supplier for the greater of: (i) a period of one (1) year following the final date of delivery; or (ii) such period as may be required under applicable federal, state or local law.
 
9.   Insurance .  Supplier shall maintain insurance during the term of this Agreement and for a period one (1) year thereafter, at its sole cost and expense, as follows:
 
(a)   General commercial liability insurance with combined bodily injury, property damage, product liability, and completed operations coverage   in the amount of $1,000,000 per occurrence, $1,000,000 in the aggregate, which names Purchaser as an additional insured ; and
 
(b)         Such statutory worker’s compensation insurance for Supplier’s employees as is required by law.
 
Upon request, Supplier shall deliver to Purchaser one or more certificates of insurance evidencing the insurance to be obtained pursuant to this Section and providing for notification to Purchaser at least thirty (30) days prior to the effective date of any termination or cancellation of such insurance.
 
10.   Assignment .  This Agreement may not be assigned by either party without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed, and any attempted assignment without such written consent shall be null and void and without legal effect.  This Agreement shall be binding upon and inure to the benefit of the respective parties hereto and their permitted successors and assigns.  Notwithstanding the foregoing, either party may assign this Agreement without the consent of the other party to any person, corporation or other entity with or into which such party may be merged, or to which all or substantially all of such party’s assets may be sold or otherwise transferred
 
11.   Waiver .  The delay or failure by either party to exercise or enforce in any one or more instances, any of the terms or conditions of this agreement shall not constitute or be deemed a waiver of that party’s right thereafter to enforce the terms and conditions of this Agreement.
 
-3-

12.   Notices .   Any and all notices required or permitted hereunder shall be in writing and delivered or sent in person, via facsimile or by registered or certified mail, return receipt requested and postage prepaid, to the following addresses:
 

Supplier:               Fiberglass Piping & Fitting Company
Attn:  Jamie Mancl


Facsimile:                                                      

Company:             Advanced Fiberglass Technologies, Inc.
Attn:  General Counsel
4400 Commerce Drive
Wisconsin Rapids, WI 54494
facsimile: 715-421-2048

Any notice properly sent as provided above shall be deemed effective and delivered on the date transmitted via facsimile or deposited in the mail, as the case may be.  Any party to this Agreement may change the facsimile number or address to which notices should be sent hereunder by giving notice of such change to the other party in accordance with the provisions of this Section.
 
13.   Counterparts .  This Agreement may be executed in two counterparts, each of which shall be deemed an original and both of which together shall be deemed to be one and the same Agreement.
 
14.   Governing Law .  This Agreement shall be governed by and construed in accordance with the internal laws of the State of Wisconsin, without regard to its principles of conflicts of law which would require the application of the laws of another jurisdiction.
 
15.   Entire Agreement; Amendment .  This Agreement represents the entire agreement between the parties with respect to the subject matter hereof and supersedes and terminates all prior agreements, whether written or oral, entered into between the parties with respect to said subject matter.  For their convenience, the parties may from time to time use their standard purchase orders, sales releases, delivery schedules, acknowledgments, invoices and other similar preprinted forms.  Any terms and conditions contained in such forms shall have no effect on the rights and obligations of the parties with respect to the purchase and sale of the Products.   This Agreement cannot be modified or amended except by a written instrument signed by both parties.
 

 
 
-4-

 

IN WITNESS WHEREOF, the parties hereto have, through their duly authorized representatives, executed this Agreement as of the date first above written.
 
  FIBERGLASS PIPING & FITTING COMPANY     ADVANCED FIBERGLASS TECHNOLOGIES, INC.  
           
           
By:
/s/  Jamie L. Mancl
  By:
/s/  Samuel Fairchild
 
 
Jamie L. Mancl
   
Samuel Fairchild
 
 
President
   
Chief Executive Officer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-5-
 


 


 


 

 
 
 
 
 
 
 
 
 
 
 
 
EXHIBIT 99.1
 
UNAUDITED FINANCIAL STATEMENTS AS OF JUNE 30, 2008
 
 
 
 

 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.  

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2008 and 2007


TABLE OF CONTENTS
   
PAGE
     
Unaudited Consolidated Financial Statements:
 
     
 
Consolidated Balance Sheets
2
     
 
Consolidated Statements of Operations
3
     
 
Consolidated Statements of Cash Flows
4
     
 
Notes to Consolidated Financial Statements
5

 

 
1

 

ADVANCED FIBERGLASS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS

   
(Unaudited)
   
(Audited)
 
   
June 30,
   
December 31,
 
   
2008
   
2007
 
ASSETS
           
Current assets:
           
Cash
  $ 34,540     $ 30,739  
Accounts receivable, net of allowance for doubtful
               
accounts of $60,000 in 2008 and $26,000 in 2007
    1,086,286       1,152,089  
Inventories
    1,047,835       864,698  
Deferred income taxes
    31,000       -  
Prepaid acquisition costs
    420,000       -  
Other current assets
    52,268       25,772  
Total current assets
    2,671,929       2,073,298  
                 
Property and equipment, net
    5,153,954       4,817,856  
                 
Other assets:
               
Deferred income taxes
    154,000       -  
Non-compete agreement, net
    -       139  
Customer list, net
    20,150       24,130  
Deferred financing costs, net
    51,217       53,128  
Total other assets, net
    225,367       77,397  
                 
Total assets
  $ 8,051,250     $ 6,968,551  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Current portion of long-term debt obligations
  $ 331,421     $ 337,533  
Lines of credit - bank
    579,008       224,378  
Short-term notes payable
    1,412,446       500,000  
Book overdraft payable
    31,832       168,087  
Accounts payable
    744,919       662,409  
Accrued expenses
    63,541       17,298  
Accrued payroll and payroll taxes
    189,319       166,145  
Due to officer/stockholder
    22,851       22,851  
Customer deposits
    109,938       150,000  
Total current liabilities
    3,485,275       2,248,701  
                 
Long-term debt obligations, net of current portion
    4,074,569       4,141,473  
                 
Non-controlling interest in variable interest entities
    159,673       100,367  
                 
Stockholders’ equity:
               
Common stock - $.01 par value; 9,000 shares authorized,
               
119.79 and 100 shares issued and outstanding, respectively
    1       1  
Additional paid-in capital
    635,269       215,269  
Retained earnings (deficit)
    (303,537 )     262,740  
Total stockholders’ equity
    331,733       478,010  
                 
Total liabilities and stockholders’ equity
  $ 8,051,250     $ 6,968,551  


The accompanying notes are an integral part of these consolidated financial statements.

 
2

 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2008 and 2007

   
(Unaudited)
   
(Unaudited)
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2008
   
2007
   
2008
   
2007
 
                         
Revenue
  $ 1,760,208     $ 1,204,270     $ 3,569,325     $ 2,204,168  
                                 
Cost of goods sold
    1,589,307       1,012,782       3,029,524       1,963,204  
                                 
Gross profit
    170,901       191,488       539,801       240,964  
                                 
Selling, general and administrative expenses
    572,377       271,845       1,024,966       491,660  
Gain on sale of land and building - variable interest entity
    -       -       -       (100,220 )
                                 
Loss from operations
    (401,476 )     (80,357 )     (485,165 )     (150,476 )
                                 
Other income (expense):
                               
Interest expense
    (89,968 )     (17,116 )     (171,806 )     (33,687 )
Interest income
    -       2,780       -       2,780  
                                 
Total other income (expense)
    (89,968 )     (14,336 )     (171,806 )     (30,907 )
                                 
Loss before non-controlling interest in variable interest entities
    (491,444 )     (94,693 )     (656,971 )     (181,383 )
                                 
Non-controlling interest in variable interest entities
    (41,351 )     (4,652 )     (94,306 )     (84,456 )
                                 
Loss before provision for income taxes
    (532,795 )     (99,345 )     (751,277 )     (265,839 )
                                 
Income tax expense/(benefit)
    (213,000 )     -       (185,000 )     -  
                                 
Net loss
  $ (319,795 )   $ (99,345 )   $ (566,277 )   $ (265,839 )
                                 
Net loss per common share - basic and diluted
  $ (3,166 )   $ (993 )   $ (5,607 )   $ (2,658 )
                                 
Weighted average shares outstanding:
                               
Basic and diluted
    101       100       101       100  


The accompanying notes are an integral part of these consolidated financial statements.

 
3

 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2008 and 2007
   
(Unaudited)
 
   
Six Months Ended June 30,
 
   
2008
   
2007
 
Cash flows from operating activities:
           
Net loss
  $ (566,277 )   $ (265,839 )
Adjustments to reconcile net loss to net cash provided by
               
(used in) operating activities:
               
Non-controlling interest in variable interest entities
    94,306       84,456  
Depreciation and amortization
    167,687       48,660  
Gain on sale of land and building - variable interest entity
    -       (100,220 )
Loss on sale of equipment
    3,785       -  
Amortization of debt discount for imputed interest
    1,830       11,530  
Deferred income taxes
    (185,000 )     -  
Changes in operating assets and liabilities:
               
Accounts receivable, net
    65,803       120,692  
Inventories
    (183,137 )     (340,421 )
Other current assets
    (26,496 )     (20,873 )
Accounts payable
    82,510       338,529  
Accrued expenses
    46,243       (6,359 )
Accrued payroll and payroll taxes
    23,174       45,040  
Customer deposits
    (40,062 )     (2,328 )
                 
Net cash provided by (used in) operating activities
    (515,634 )     (87,133 )
                 
Cash flows from investing activities:
               
Purchase of property and equipment
    (449,868 )     (56,833 )
Proceeds from sale of property and equipment
    16,000       372,670  
                 
Net cash provided by (used in) investing activities
    (433,868 )     315,837  
                 
Cash flows from financing activities:
               
Increase (decrease) in bank overdraft payable
    (136,255 )     22,314  
Net borrowings from lines of credit -bank
    354,630       94,944  
Financing costs for long-term debt
    -       (10,010 )
Distributions to stockholder - AFT
    -       (113,282 )
Borrowings from officer/stockholder
    -       22,851  
Net borrowings from short-term notes payable
    912,446       117,000  
Payments on long-term debt
    (142,518 )     (238,952 )
Capital distributions by variable interest entities
    (35,000 )     (128,500 )
                 
Net cash provided by (used in) financing activities
    953,303       (233,635 )
                 
Net increase (decrease) in cash and cash equivalents
    3,801       (4,931 )
                 
Cash and cash equivalents:
               
Beginning of period
    30,739       14,199  
                 
End of period
  $ 34,540     $ 9,268  

The accompanying notes are an integral part of these consolidated financial statements.

 
4

 
Advanced Fiberglass Technologies, Inc.
Notes to Financial Statements (Unaudited)
Three and Six Months Ended June 30, 2008 and 2007

1.           BASIS OF PRESENTATION

The accompanying unaudited consolidated financial information has been prepared by Advanced Fiberglass Technologies, Inc. (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, it does not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of this financial information have been included. Financial results for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year as a whole or any other interim period. This financial information should be read in conjunction with the audited consolidated financial statements and notes included in Appendix B elsewhere in this filing for the years ended December 31, 2007 and 2006.

2.           BUSINESS OVERVIEW

Nature of Business

Advanced Fiberglass Technologies, Inc., (AFT, the Company) based in Wisconsin Rapids, Wisconsin, is a manufacturer, installer and marketer of fiberglass products which are sold throughout the United States, but primarily in the Midwest.  The Company also has a service division that provides installation and repair of various piping projects primarily in Wisconsin.  The Company serves the paper, oil, agricultural, ethanol and power industries.

The Company commenced operations in 1995 as M&W Fiberglass, LLC.  Effective January 1, 2005, all operating assets and liabilities were transferred into a newly created S-Corporation known as Advanced Fiberglass Technologies, Inc. which continues to be the corporate structure under which the Company operates today.  M&W Fiberglass, LLC retained ownership of the manufacturing facility and land which is leased to Advanced Fiberglass Technologies, Inc.  Additionally, the Company terminated its S-Corporation election effective January 1, 2008.

In June 2008, the Company entered into an agreement with Las Palmas Mobile Estates (LPME), a “public shell” corporation, which would effect a reverse acquisition of AFT through a Share Exchange Agreement.  Under the terms and conditions specified, AFT would become the subsidiary of LPME, and the AFT shareholders would control approximately 72% of the outstanding shares of the parent entity.  As of August 29, 2008, the closing of this transaction has not yet occurred.

Variable Interest Entities

The Company is considered the primary beneficiary in the following entities:

M&W Fiberglass, LLC (M&W) is a lessor of real estate to AFT and is wholly owned by the stockholder of AFT.  M&W had leased real estate at 16 th Street South, Wisconsin Rapids, Wisconsin to the Company, prior to February, 2007, at $48,000 annually (22,420 square foot manufacturing facility and office space).  This property was sold in February 2007 by M&W to the City of Wisconsin Rapids for a sales price of $372,670 with a resulting gain of $100,220.  As of August 2007, M&W began leasing a newly constructed manufacturing and office facility (70,300 square feet) at Commerce Drive, Wisconsin Rapids, Wisconsin to the Company at $30,000 per month from August 1, 2007 to December 31, 2007 and $35,000 per month starting January 1, 2008 plus an annual adjustment for the cost of living increase thereafter.  M&W obtained industrial revenue bond and note financing for the new facility through a co-borrower arrangement with AFT.  Under the terms of the lease, the Company is responsible for paying all property taxes, repairs and insurance.

 
5

 
Advanced Fiberglass Technologies, Inc.
Notes to Financial Statements (Unaudited)
Three and Six Months Ended June 30, 2008 and 2007

Fiberglass Piping & Fitting Company (FPF) is a wholesale distributor of fiberglass piping and is wholly owned by the stockholder of AFT.  FPF started operations as a newly formed LLC on September 16, 2006 and had limited operations during 2006 and 2007.  All FPF financing is secured by the unlimited guarantee of the Company.

3.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The Company consolidates its financial results in accordance with Financial Accounting Standards Board, or FASB, Interpretation No. 46R, Consolidation of Variable Interest Entities, or FIN 46R, which requires a company to consolidate entities determined to be variable interest entities (VIEs), for which the Company is deemed to be the VIE’s primary beneficiary. The Company has determined that M&W Fiberglass, LLC (M&W) and Fiberglass Piping & Fitting Company (FPF) are VIEs and that AFT is the primary beneficiary of such VIEs, as defined by FIN 46R. M&W owns the manufacturing facility which is leased to the Company and FPF is a wholesale distributor of fiberglass pipe fittings to the Company and other third-party companies.  The sole stockholder of AFT is the 100% owner of these companies which results in AFT holding a significant influence over their continuing operations. Although AFT holds no legal ownership in the VIEs, as a result of AFT guaranteeing the debt of M&W and FPF, this would suggest the VIEs cannot support and finance their operations on their own, and AFT would likely absorb any expected future losses.  As such, the Company has concluded that AFT is required to consolidate the VIEs. As of June 30, 2008, AFT has funded no losses of the VIEs.

As of and for the six months ended June 30, 2008 and 2007, the financial statements and footnotes of AFT have been presented on a consolidated basis to include its variable interests in M&W and FPF.  All significant intercompany accounts and transactions have been eliminated in consolidation.

The effect of the VIEs’ consolidation on the Company’s consolidated balance sheet at June 30, 2008, was an increase in the Company’s assets and liabilities of $3,694,654 and $3,514,262, respectively. The liabilities of the VIEs consolidated by the Company do not represent additional claims on the Company’s general assets; rather they represent claims against the specific assets of the VIEs. As stated above though, the Company has guaranteed certain debts of the VIEs.  Likewise, the assets of the VIEs consolidated by the Company do not represent additional assets available to satisfy claims against the Company’s general assets. For the six months ended June 30, 2008, the revenue of the VIEs represented $306,976 or 8.6% of the consolidated revenue of the Company. For the six months ended June 30, 2007, the revenue of the VIEs represented $56,329 or 2.6% of the consolidated revenue of the Company. Through consolidation, the Company recognizes all net losses of the VIEs in excess of the equity in those VIEs which currently is none. The Company recognizes net earnings of the VIEs only to the extent it is recovering losses previously recognized with respect to the VIEs. Earnings of the VIEs in excess of the Company’s previously recognized losses with respect to that VIE are eliminated from the Company’s earnings and are attributed to the respective equity owner of the VIEs by recording such earnings as non-controlling interest in variable interest entities on the Company’s consolidated financial statements. During the six months ended June 30, 2008 and 2007, the VIEs experienced a combined net income of $94,306 and $84,456, respectively, which accordingly, resulted in a non-controlling interest expense.

Revenue Recognition

The Company derives revenue primarily from the sale of the Company’s manufactured products (tanks, piping, & ductwork), installation of those tanks on occasion and service/repair.  In accordance with SEC Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”), revenue is recognized when persuasive evidence of an arrangement exists, the price is fixed and determinable, and transfer of title has occurred, services have been rendered or delivery has occurred per contract terms and collection of the

 
6

 
Advanced Fiberglass Technologies, Inc.
Notes to Financial Statements (Unaudited)
Three and Six Months Ended June 30, 2008 and 2007

related receivable is reasonably assured. At times, customer deposits and other receipts are received and are deferred and recognized when earned.  Shipping and handling costs are classified as a cost of goods sold component.

Most of the Company’s products are sold without installation services included.  These product only sales are generally recognized into revenue at the time of shipment and if all other contractual obligations have been satisfied.  When the Company provides a combination of products and installation services, the arrangement is evaluated under Emerging Issues Task Force Issue (“EITF”) No. 00-21 “Revenue Arrangements with Multiple Deliverables”.  Most installation work is generally done in a short period of time (less than 30 days) and the corresponding revenue is recorded upon the completion of the installation and all contractual obligations have been met.

For any service/repair, most work is performed on a time and material basis and revenue is recognized upon performance.

AFT provides a standard one year warranty for product and service sales. Accruals necessary for product warranties are estimated based upon historical warranty costs which in the past have been immaterial to the financial statements as a whole.  As of June 30, 2008, no accrual for warranty expense has been recorded due to immateriality.

Income Taxes

The Company, with the consent of its stockholder, had elected under the Internal Revenue Code to be an S-Corporation.  In lieu of corporate income taxes, the stockholders of an S-Corporation are taxed on their proportionate share of the Company’s taxable income.  Therefore, no provision or liability for federal or state income taxes has been recorded prior to January 1, 2008.

Effective January 1, 2008, the Company terminated its S-Corporation election.  The Company is operating as a C-Corporation in 2008 and will be subject to income and deferred taxes on future taxable income or losses.

As previously noted, the Company consolidates its financial results under the provisions of FIN 46R.  For income tax purposes, however, the Company is not considered a consolidated entity.  As a result, income generated by M&W and FPF, as well as any losses recognized, are excluded from AFT’s net income (loss) which is ultimately reported in the Company’s corporate tax returns.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) applicable to common shareholders by the weighted average number of common shares outstanding during the periods presented.  Diluted earnings (loss) per share is determined using the weighted average number of common shares outstanding during the periods presented, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of options, warrants, and conversion of convertible debt.  In periods where losses are reported, the weighted average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.

As of June 30, 2008 and 2007, there were no common stock equivalents.

Effect of Recently Issued Accounting Standards

In February 2007, the FASB issued Statement of Financial Accounting Standards Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB

 
7

 
Advanced Fiberglass Technologies, Inc.
Notes to Financial Statements (Unaudited)
Three and Six Months Ended June 30, 2008 and 2007

Statement No. 115 (“SFAS 159”). This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. This standard is effective for financial statements issued for fiscal years beginning after November 15, 2007. We adopted the provisions of SFAS 159 on January 1, 2008. The Company did not elect to measure any of our financial assets or liabilities using the fair value option of SFAS 159. The Company will assess at each measurement date whether to use the fair value option on any future financial assets or liabilities as permitted pursuant to the provisions of SFAS 159.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). This standard clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability. Additionally, it establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. In February 2008, the FASB issued FASB Staff Position No. 157-2 (“FSP 157-2”), which delayed the effective date by which companies must adopt the provisions of SFAS 157. FSP 157-2 defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The adoption of this standard is not anticipated to have a material impact on our financial position, results of operations, or cash flows.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141R, Business Combinations (“SFAS 141R”), which establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for fiscal years beginning after December 15, 2008. Early adoption is not permitted. The Company is currently evaluating the effect of the adoption of SFAS 141R, but does not presently anticipate it will have a material impact on its consolidated financial position or results of operations.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 (“SFAS 160”), which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company has evaluated the effect of the adoption of SFAS 160, but does not presently anticipate it will have a material effect on its consolidated financial position or results of operations.

4.           INVENTORY

Inventories consist of the following:

   
June 30,
   
December 31,
 
   
2008
   
2007
 
             
Raw materials
  $ 291,960     $ 326,839  
Work in progress
    387,859       248,527  
Finished goods
    334,253       289,332  
Inventory deposits
    33,763       -  
    Total
  $ 1,047,835     $ 864,698  


 
8

 
Advanced Fiberglass Technologies, Inc.
Notes to Financial Statements (Unaudited)
Three and Six Months Ended June 30, 2008 and 2007

5.           PROPERTY AND EQUIPMENT, NET

Property and equipment are as follows:

   
June 30,
   
December 31,
 
   
2008
   
2007
 
             
Land
  $ 41,265     $ 41,265  
Buildings and improvements
    3,531,010       3,523,265  
Machinery and equipment
    1,541,659       1,256,202  
Vehicles and trailers
    372,734       229,995  
Computer equipment
    164,698       127,727  
Furniture and office equipment
    98,443       89,896  
      5,749,809       5,268,350  
Less accumulated depreciation
    (595,855 )     (450,494 )
    Net property and equipment
  $ 5,153,954     $ 4,817,856  

Depreciation expense was $161,657 and $41,344 for the six months ended June 30, 2008 and 2007, respectively.

The cost and accumulated amortization of equipment under capital lease as of June 30, 2008 was $21,075 and $1,405, respectively. The cost and accumulated amortization of equipment under capital lease as of December 31, 2007 was $21,075 and $351, respectively.

6.           INTANGIBLE ASSETS

Intangible assets are as follows:

   
June 30,
   
December 31,
 
   
2008
   
2007
 
             
Non-compete agreement
  $ 5,000     $ 5,000  
Customer list
    74,434       74,434  
Deferred financing costs
    55,397       55,397  
      134,831       134,831  
Less accumulated amortization
    (63,464 )     (57,434 )
    Net intangible assets
  $ 71,367     $ 77,397  

Amortization expense was $6,030 and $7,316 for the six months ended June 30, 2008 and 2007, respectively.  Amortization expense for the next five years is as follows:

2008 - remaining
  $ 5,896  
2009
    9,158  
2010
    7,398  
2011
    6,218  
2012
    5,429  


 
9

 
Advanced Fiberglass Technologies, Inc.
Notes to Financial Statements (Unaudited)
Three and Six Months Ended June 30, 2008 and 2007

7.           FINANCING ARRANGEMENTS

Lines of Credit - Bank

The Company utilizes lines of credit to fund current operations.  The lines typically extend one year and are automatically renewed on an annual basis.  Lines of credit outstanding are as follows:

   
June 30,
   
December 31,
 
   
2008
   
2007
 
             
AFT has a revolving line of credit with Nekoosa Port Edwards State Bank (NPESB) that provides for maximum borrowings of $250,000, bears interest at a fixed rate of 6.75% at June 30, 2008 and matures in May 2009.  The line is secured by all business assets of AFT, an assignment of life insurance on the officer/stockholder, a mortgage on property owned by M&W, and an unlimited guaranty by FPF
  $ 149,008     $ 105,000  
                 
AFT has a revolving line of credit with the same bank noted above that provides for maximum borrowings of $430,000, bears interest at a fixed rate of 6.75% at June 30, 2008 and is due on demand.  The line is secured by all business assets of AFT, an assignment of life insurance on the officer/stockholder, a mortgage on M&W, and an unlimited guaranty by FPF and its stockholder
    430,000       70,500  
                 
FPF had a revolving line of credit with the same bank noted above that provides for maximum borrowings of $125,000, bears interest at a fixed rate of 8.25% at December 31, 2007 and was paid off March 28, 2008.  The line was secured by all business assets of AFT, an assignment of life insurance on the officer/stockholder, a mortgage on property owned by M&W, and an unlimited guaranty by FPF and its stockholder
    -       48,878  
                 
    Total lines of credit – bank
  $ 579,008     $ 224,378  

Short-Term Notes Payable

AFT and FPF use short-term notes payable from NPESB to fund bulk purchases of inventory and large jobs in addition to utilizing their lines of credit.  The underlying inventory and customer purchase orders serve as specific collateral for these notes.  In addition, the short-term notes are also typically secured by all business assets of each respective company.  Short-term notes payable includes a $300,000 unsecured note that was issued to a stockholder and is due upon demand.  For the FPF short-term notes, AFT guarantees the notes as well.  The notes bear interest at fixed rates.  The notes are typically twelve months or less.  Short-term notes payable are as follows:
 
10

Advanced Fiberglass Technologies, Inc.
Notes to Financial Statements (Unaudited)
Three and Six Months Ended June 30, 2008 and 2007
 
   
March 31, 2008
   
December 31, 2007
 
AFT
  $ 900,000     $ 120,000  
FPF
    512,466       380,000  
    Total
  $ 1,412,466     $ 500,000  
                 
Weighted average interest rate
    7.54 %     8.25 %

Long-Term Debt Obligations

Long-term debt obligations are as follows:
   
June 30,
   
December 31,
 
AFT debt
 
2008
   
2007
 
             
US Bank - a term loan secured by a vehicle, interest rate of 6.59%, due August 2009, monthly payments of $406 and was paid off June 4, 2008
  $ -     $ 4,652  
                 
NPESB - a term loan secured by 15 ton deck crane, interest rate of 7.25%, due October 2010, monthly payments of $948
    22,357       27,429  
                 
NPESB - a term loan secured by all general business assets of the Company and a stockholder guarantee; interest rate of 6.75%, due on demand, monthly payments of $898
    54,466       58,516  
                 
NPESB - an industrial revenue bond term loan, secured by equipment, and a stockholder guarantee; contains restrictive financial covenants, interest rate of 5.75%, due July 2014, monthly payments of $7,266
    443,400       473,515  
                 
NPESB - an industrial revenue bond term loan, secured by equipment, and a stockholder guarantee; contains restrictive financial covenants, interest rate of 5.75%, due July 2014, monthly payment of $7,266
    437,933       401,203  
                 
City of Wisconsin Rapids, a term loan, secured by all assets and a stockholder guarantee; contains various operating covenants of which the Company is in compliance, interest rate 2%, due April 2012, monthly payments of $4,499
    461,997       484,221  
                 
Yale Financial Services, a capital lease term loan, secured by two Yale forklifts, interest rate 7.7%, due October 2010, monthly payments of $657
    16,802       20,027  
                 
 
 
11

Advanced Fiberglass Technologies, Inc.
Notes to Financial Statements (Unaudited)
Three and Six Months Ended June 30, 2008 and 2007
 
M&W debt
               
                 
City of Wisconsin Rapids, a $75,000 term loan, secured by owner guarantees; imputed interest at 8% resulting in an original issue discount with an unamortized balance of $29,070 at June 30, 2008, balloons in August 2014
    45,930       44,100  
                 
NPESB – an industrial revenue bond term loan, secured by real estate, stockholder and AFT guarantees; contains restrictive financial covenants, interest rate of 5.50%, due July 2027, monthly payment of $20,766
    2,923,105       2,965,343  
                 
      4,405,990       4,479,006  
    Less current portion of long-term obligations
    (331,421 )     (337,533 )
                 
    Total long-term debt obligations, net of current portion
  $ 4,074,569     $ 4,141,473  


 
12

 

Advanced Fiberglass Technologies, Inc.
Notes to Financial Statements (Unaudited)
Three and Six Months Ended June 30, 2008 and 2007

Maturities of long-term debt obligations are as follows:

2008 - remaining
  $ 190,904  
2009
    284,273  
2010
    293,874  
2011
    295,340  
2012
    561,904  
Thereafter
    2,779,695  
    $ 4,405,990  

At December 31, 2007, the Company was not in compliance with various restrictive financial covenants contained in the industrial revenue bonds.  The tangible net worth covenant requires the Company to maintain at least $600,000 in net worth.  The debt service coverage ratio covenant requires the Company to maintain at least 1.25 coverage.  The indebtedness to tangible net worth ratio requires the Company to maintain a ratio of less than 3.5 to 1.0.  The Company, subsequent to December 31, 2007, has received waiver letters on these covenant defaults from the lenders and these violated covenants are waived through September 30, 2009 and will not be remeasured again until December 31, 2009.

8.           SHAREHOLDERS’ EQUITY

On June 26, 2008, the Company issued 19.79 shares of common stock to an unrelated party in exchange for consulting services related to the potential reverse acquisition of AFT by LPME.  The stock was valued at $420,000, which was the estimated fair market value of the Company’s common stock, and was recorded as Prepaid Acquisition Costs on the June 30, 2008 balance sheet since the transaction has not yet been consummated.  If the reverse acquisition is not completed, these shares will be transferred back to the Company and cancelled.

9.           INCOME TAXES

Effective January 1, 2008, the Company terminated its S-Corporation election and is now operating as a C-Corporation which is subject to income and deferred taxes on taxable income and losses. As a result of the tax status conversion, an initial $110,000 of net deferred tax liabilities were recorded as income tax expense during the six months ended June 30, 2008. Additionally, the Company recorded a tax benefit relating to the loss incurred for the six months ended June 30, 2008.

The income tax provision consisted of the following for the six months ended June 30, 2008:

   
2008
 
Currently payable (refundable)
  $ -  
Deferred tax expense
    (295,000 )
      (295,000 )
         
Establishment of the net deferred tax liabilities as of January 1, 2008 due to change in tax status
    110,000  
Total income tax provision
  $ (185,000 )


 
13

 
Advanced Fiberglass Technologies, Inc.
Notes to Financial Statements (Unaudited)
Three and Six Months Ended June 30, 2008 and 2007

Significant components of the Company’s estimated deferred tax assets and liabilities at June 30, 2008 are as follows:

   
2008
 
Deferred tax assets:
     
Accounts receivable allowance
  $ 24,000  
Accrued liabilities
    7,000  
Net operating loss carry forwards
    272,000  
Total deferred tax assets
    303,000  
         
Deferred tax liabilities:
       
Accumulated depreciation
    (118,000 )
Net deferred tax asset
  $ 185,000  

Deferred tax components included in the Company’s balance sheet at June 30, 2008 are as follows:

   
2008
 
Current deferred tax asset
  $ 31,000  
Long-term deferred tax asset
    154,000  
Net deferred tax liability
  $ 185,000  

10.           COMMITMENTS AND RELATED PARTY TRANSACTIONS

Manufacturing and Office Facility Lease

The Company leases its manufacturing facility at Commerce Drive, Wisconsin Rapids, WI with M&W who is considered a variable interest entity of the Company. This lease was established on August 1, 2007 for a 20 year term.  From August 1, 2007 to December 31, 2007, the Company paid $30,000 per month.  Starting on January 1, 2008, the lease calls for monthly payments of $35,000 with an annual adjustment for a cost of living increase.

Total lease payments to M&W for the six months ended June 30, 2008 and 2007 were $210,000 and $24,000, respectively.

The Company also leases office space in Hastings, MI for its Field Services Division. This lease was established on March 1, 2008 for a one year term. Monthly lease payments are $925.

Various other operating leases expiring through March 2013 were entered into for equipment and vehicles during the six months ended June 30, 2008. The monthly payment for all operating leases totals $2,401.

Future minimum operating lease payments for all leases for the years ending December 31 are as follows:

2008 - remaining
  $ 229,958  
2009
    450,667  
2010
    448,817  
2011
    434,302  
2012
    430,825  
Thereafter
    6,126,804  
    $ 8,121,373  


 
14

 
Advanced Fiberglass Technologies, Inc.
Notes to Financial Statements (Unaudited)
Three and Six Months Ended June 30, 2008 and 2007

Other Related Party Transactions

AFT purchased fiberglass pipe fittings from FPF totaling $61,232 and $63,484 for the six months ended June 30, 2008 and 2007, respectively. FPF purchased various manufacturing services from AFT totaling $8,643 and $486 for the six months ended June 30, 2008 and 2007, respectively.

11.           SUBSEQUENT EVENT

In August 2008, the Company received loan proceeds of $1,214,838 from LPME in anticipation of the acquisition of AFT being consummated. This loan will fund AFT’s field service operations start-up costs and down payments required on purchases of field winding equipment.

12.           SALES AND COST OF SALES

The table below is a summary of operations for Products and Components and Service and Installation activities for the three and six months ended June 30, 2008.

   
Three Months Ended June 30, 2008
 
   
Products & Components
   
Service & Installation
   
Total
 
Net sales
  $ 1,164,720     $ 595,488     $ 1,760,208  
Cost of sales
    1,150,640       438,667       1,589,307  
                         
Gross Profit
  $ 14,080     $ 156,821     $ 170,901  
                         
                         
   
Six Months Ended June 30, 2008
 
   
Products & Components
   
Service & Installation
   
Total
 
Net sales
  $ 2,715,507     $ 853,818     $ 3,569,325  
Cost of sales
    2,348,901       680,623       3,029,524  
                         
Gross Profit
  $ 366,606     $ 173,195     $ 539,801  

 
15
 

 


 
 


 

 
 
 
 
 
 
 
 
 
 
 
 
 
EXHIBIT 99.2
 
AUDITED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007
 

 

 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.  
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2007 and 2006


TABLE OF CONTENTS
   
PAGE
     
Report of Independent Registered Public Accounting Firm
2
     
Consolidated Financial Statements:
 
     
 
Balance Sheets
3
     
 
Statements of Income
4
     
 
Statements of Stockholder’s Equity
5
     
 
Statements of Cash Flows
6
     
 
Notes to Consolidated Financial Statements
7


 
1

 








REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholder of
Advanced Fiberglass Technologies, Inc.


We have audited the accompanying consolidated balance sheets of Advanced Fiberglass Technologies, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of income, stockholder’s equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Advanced Fiberglass Technologies, Inc. as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.


/s/ Carver Moquist & O’Conner, LLC


Bloomington, Minnesota
March 20, 2008


 
2

 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.  

CONSOLIDATED BALANCE SHEETS
December 31, 2007 and 2006
   
2007
   
2006
 
ASSETS
           
             
Current assets:
           
Cash
  $ 30,739     $ 14,199  
Accounts receivable, net of allowance for doubtful accounts
               
of approximately $26,000 in 2007 and $22,000 in 2006
    1,152,089       764,604  
Inventories, net
    864,698       340,351  
Other current assets
    25,772       13,025  
                 
Total current assets
    2,073,298       1,132,179  
                 
Property and equipment, net
    4,817,856       596,508  
                 
Intangible assets:
               
Non-compete agreement, net
    139       1,806  
Customer list, net
    24,130       36,015  
Deferred financing costs, net
    53,128       -  
                 
Total intangible assets, net
    77,397       37,821  
                 
Total assets
  $ 6,968,551     $ 1,766,508  
                 
LIABILITIES AND STOCKHOLDER'S EQUITY
               
                 
Current liabilities:
               
Current portion of long-term debt obligations
  $ 337,533     $ 218,939  
Lines of credit - bank
    224,378       159,462  
Short-term notes payable
    500,000       153,000  
Book overdraft payable
    168,087       215,390  
Accounts payable
    662,409       170,995  
Accrued expenses
    17,298       17,571  
Accrued payroll and payroll taxes
    166,145       52,889  
Due to officer/stockholder
    22,851       -  
Customer deposits
    150,000       2,328  
                 
Total current liabilities
    2,248,701       990,574  
                 
Long-term debt obligations, net of current portion
    4,141,473       151,727  
                 
Non-controlling interest in variable interest entities
    100,367       75,671  
                 
Stockholder's equity:
               
Common stock - $.01 par value; 9,000 shares
               
authorized, 100 shares issued and outstanding
    1       1  
Additional paid-in capital
    215,269       215,269  
Retained earnings
    262,740       333,266  
                 
Total stockholder's equity
    478,010       548,536  
                 
Total liabilities and stockholder's equity
  $ 6,968,551     $ 1,766,508  

The accompanying notes are an integral part of these consolidated financial statements.

 
3

 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.  

CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2007 and 2006

   
2007
   
2006
 
             
Revenue
  $ 6,541,256     $ 4,663,305  
                 
Cost of goods sold
    5,215,245       3,711,715  
                 
Gross profit
    1,326,011       951,590  
                 
Selling, general and administrative expenses
    1,085,521       587,483  
Gain on sale of land and building - variable interest entity
    (100,220 )     -  
                 
Income from operations
    340,710       364,107  
                 
Other income (expense):
               
Interest expense
    (132,274 )     (53,153 )
Interest income
    2,783       -  
                 
Total other income (expense)
    (129,491 )     (53,153 )
                 
Income before non-controlling interest in variable interest entities
    211,219       310,954  
                 
Non-controlling interest in variable interest entities
    (168,195 )     (9,288 )
                 
Net income
  $ 43,024     $ 301,666  
                 
                 
Net income per common share
  $ 430     $ 3,017  
                 
Weighted average shares outstanding:
               
Basic and diluted
    100       100  
                 



The accompanying notes are an integral part of these consolidated financial statements.

 
4

 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.  

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY
For the Years Ended December 31, 2007 and 2006

                           
Total
 
   
Common Stock
   
Additional
   
Retained
   
Stockholder's
 
   
Shares
   
Amount
   
Paid-in Capital
   
Earnings
   
Equity
 
                               
Balance at December 31, 2005
    100     $ 1     $ 215,269     $ 95,762     $ 311,032  
                                         
  Net income
                            301,666       301,666  
  Stockholder's distributions
                            (64,162 )     (64,162 )
                                         
Balance at December 31, 2006
    100       1       215,269       333,266       548,536  
                                         
  Net income
                            43,024       43,024  
  Stockholder's distributions
                            (113,550 )     (113,550 )
                                         
Balance at December 31, 2007
    100     $ 1     $ 215,269     $ 262,740     $ 478,010  
                                         


The accompanying notes are an integral part of these consolidated financial statements.

 
5

 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.  

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2007 and 2006

   
2007
   
2006
 
Cash flows from operating activities:
           
Net income
  $ 43,024     $ 301,666  
Adjustments to reconcile net income to net cash provided by
               
(used in) operating activities:
               
Non-controlling interest in variable interest entities
    168,195       9,288  
Depreciation and amortization
    150,065       96,302  
(Gain) loss on disposal of property and equipment
    (88,046 )     392  
Amortization of debt discount for imputed interest
    12,945       5,039  
Changes in operating assets and liabilities:
               
Accounts receivable, net
    (387,485 )     (531,509 )
Inventories, net
    (524,347 )     (175,973 )
Other current assets
    (12,747 )     (10,485 )
Accounts payable
    491,414       160,762  
Accrued expenses
    (273 )     15,591  
Accrued payroll and payroll taxes
    113,256       31,086  
Customer deposits
    147,672       2,328  
                 
Net cash provided by (used in) operating activities
    113,673       (95,513 )
                 
Cash flows from investing activities:
               
Purchase of property and equipment
    (190,948 )     (156,200 )
Proceeds from sale of property and equipment
    372,670       -  
                 
Net cash provided by (used in) investing activities
    181,722       (156,200 )
                 
Cash flows from financing activities:
               
Increase (decrease) in bank overdraft payable
    (47,303 )     83,968  
Net borrowings from lines of credit -bank
    64,916       155,462  
Financing costs for long-term debt
    (10,010 )     -  
Distributions to stockholder - AFT
    (113,550 )     (64,162 )
Borrowings from officer/stockholder
    22,851       -  
Net borrowings from short-term notes
    347,000       153,000  
Payments on long-term debt
    (399,260 )     (45,479 )
Capital distributions by variable interest entities
    (143,499 )     (44,701 )
                 
Net cash provided by (used in) financing activities
    (278,855 )     238,088  
                 
Net increase (decrease) in cash and cash equivalents
    16,540       (13,625 )
                 
Cash and cash equivalents:
               
Beginning of year
    14,199       27,824  
                 
End of year
  $ 30,739     $ 14,199  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
6

 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006


1.           BUSINESS OVERVIEW

Nature of Business

Advanced Fiberglass Technologies, Inc., (AFT, the Company) based in Wisconsin Rapids, Wisconsin, is a manufacturer, installer and marketer of fiberglass products which are sold throughout the United States, but primarily in the Midwest.  The Company has a service division that provides installation and repair of various piping projects primarily in Wisconsin.  The Company serves the paper, oil, agricultural, ethanol and power industries.

The Company commenced operations in 1995 as M&W Fiberglass, LLC.  Effective January 1, 2005, all operating assets and liabilities were transferred into a newly created S-Corporation known as Advanced Fiberglass Technologies, Inc. which continues to be the corporate structure under which the Company operates today.  M&W Fiberglass, LLC retained ownership of the manufacturing facility and land which is leased to Advanced Fiberglass Technologies, Inc.

Variable Interest Entities

The Company is considered the primary beneficiary in the following entities:

M&W Fiberglass, LLC (M&W) is a lessor of real estate to AFT and is wholly owned by the stockholder of AFT.  M&W had leased real estate at 16 th Street South, Wisconsin Rapids, Wisconsin to the Company, prior to February, 2007, at $48,000 annually (22,420 square foot manufacturing facility and office space).  This property was sold in February 2007 by M&W to the City of Wisconsin Rapids for a sales price of $372,670 with a resulting gain of $100,220.  As of August 2007, M&W began leasing a newly constructed manufacturing and office facility (70,300 square feet) at Commerce Drive, Wisconsin Rapids, Wisconsin to the Company at $30,000 per month from August 1, 2007 to December 31, 2007 and $35,000 per month starting January 1, 2008 plus an annual adjustment for the cost of living increase thereafter.  M&W obtained industrial revenue bond and note financing for the new facility through a co-borrower arrangement with AFT.  Under the terms of the lease, the Company is responsible for paying all property taxes, repairs and insurance.

Fiberglass Piping & Fitting Company (FPF) is a wholesale distributor of fiberglass piping and is wholly owned by the stockholder of AFT.  FPF started operations as a newly formed LLC on September 16, 2006 and had limited operations during 2006 and 2007.  All FPF financing is secured by the unlimited guarantee of the Company.


 
7

 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006


2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The Company consolidates its financial results in accordance with Financial Accounting Standards Board, or FASB, Interpretation No. 46R, Consolidation of Variable Interest Entities, or FIN 46R, which requires a company to consolidate entities determined to be variable interest entities (VIEs), for which the Company is deemed to be the VIE’s primary beneficiary. The Company has determined that M&W Fiberglass, LLC (M&W) and Fiberglass Piping & Fitting Company (FPF) are VIEs and that AFT is the primary beneficiary of such VIEs, as defined by FIN 46R. M&W owns the manufacturing facility which is leased to the Company and FPF is a wholesale distributor of fiberglass pipe fittings to the Company and other third-party companies.  The sole stockholder of AFT is the 100% owner of these companies which results in AFT holding a significant influence over their continuing operations. Although AFT holds no legal ownership in the VIEs, as a result of AFT guaranteeing the debt of M&W and FPF, this would suggest the VIEs cannot support and finance their operations on their own, and AFT would likely absorb any expected future losses.  As such, the Company has concluded that AFT is required to consolidate the VIEs. As of December 31, 2007, AFT has funded no losses of the VIEs.

As of and for the years ended December 31, 2007 and 2006, the financial statements and footnotes of AFT have been presented on a consolidated basis to include its variable interests in M&W and FPF.  All significant intercompany accounts and transactions have been eliminated in consolidation.

The effect of the VIEs’ consolidation on the Company's consolidated balance sheet at December 31, 2007, was an increase in the Company's assets and liabilities of $3,680,009 and $3,535,294, respectively. At December 31, 2006, as a result of consolidating the VIEs, the Company's assets and liabilities increased by $416,370 and $299,521, respectively. The liabilities of the VIEs consolidated by the Company do not represent additional claims on the Company's general assets; rather they represent claims against the specific assets of the VIEs. As stated above though, the Company has guaranteed certain debts of the VIEs.  Likewise, the assets of the VIEs consolidated by the Company do not represent additional assets available to satisfy claims against the Company's general assets. For the year ended December 31, 2007, the revenue of the VIEs represented $168,836 or 2.6% of the consolidated revenue of the Company. For the year ended December 31, 2006, the revenue of the VIEs represented only $12,798 of the consolidated revenue of the Company. Through consolidation, the Company recognizes all net losses of the VIEs in excess of the equity in those VIEs which currently is none. The Company recognizes net earnings of the VIEs only to the extent it is recovering losses previously recognized with respect to the VIEs. Earnings of the VIEs in excess of the Company's previously recognized losses with respect to that VIE are eliminated from the Company's earnings and are attributed to the respective equity owner of the VIEs by recording such earnings as non-controlling interest in variable interest entities on the Company's consolidated financial statements. During the year ended December 31, 2007 and 2006, the VIEs experienced net income of $168,195 and $9,288, respectively, which accordingly, resulted in a non-controlling interest expense.


 
8

 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006


Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements.  Estimates also effect the reported amounts of revenues and expenses during the reporting period.  Accordingly, actual results could differ from those estimates.

Concentrations of Risk

Cash Deposits

The Company maintains it cash in high-quality financial institutions.  The balances, at times, may exceed the $100,000 federally insured limits.

Credit Risk and Major Customers

Financial instruments that may subject the Company to significant concentrations of credit risk consist primarily of trade receivables.  The Company grants credit to its customers throughout the United States in the normal course of business.  Customer creditworthiness is routinely monitored and collateral is not required.  The following is a schedule of significant sales to customers for the years ended December 31, 2007 and 2006 and significant customer accounts receivable balances at December 31, 2007 and 2006:

   
Percentage of
Total Sales
 
Percentage of Trade Accounts Receivable
Customer
 
2007
 
2006
 
2007
 
2006
                 
1
 
47.30%
 
32.30%
 
46.60%
 
34.40%
2
 
12.2
 
13.8
 
4.1
 
4.1
3
 
11.6
 
13.7
 
2.9
 
11.7
   
71.10%
 
59.80%
 
53.60%
 
50.20%

Labor Force

A significant part of the company’s production labor force is covered by two collective bargaining agreements which expire in May 2009.

Cash and Cash Equivalents

For purposes of balance sheet presentation, the Company considers all unrestricted demand deposits, money market funds, savings funds and investments purchased with an original maturity of three months or less to be cash and cash equivalents.


 
9

 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006


Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount.  The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable.  The Company determines the allowance based on historical write-off experience by the Company.  The Company reviews its allowance for doubtful accounts monthly. Individual accounts with past due balances over 90 days are specifically reviewed for collectibility.  All other balances are reviewed on a pooled basis.  Account balances are charged off against accounts receivable, as bad debt, after all means of collection have been exhausted and the potential for recovery is considered remote.  Finance charges are accrued monthly, but not recognized on past due trade receivables until management determines that such charges will be collected.

Inventories

Inventories are stated at the lower of cost or market, with cost determined on the first-in, first-out (FIFO) basis.  Allowances are recorded for estimated excess and obsolete inventories based primarily on forecasts of product demand and estimated production requirements.

Property and Equipment

Property and equipment are stated at cost.  Depreciation is provided on the straight-line method over the estimated useful lives of the respective assets.  Maintenance and repairs are charged to expense as incurred; major renewals and betterments are capitalized.  As items are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in operating income.

The estimated useful lives for computing depreciation are as follows:

   
Years
Building
 
40
Building and land improvements
 
15
Computer equipment
 
3 to 5
Manufacturing equipment
 
5 to 10
Furniture and office equipment
 
5 to 10
Vehicles and trailers
 
5

Intangible Assets

Intangible assets are stated at cost.  They comprise a non-compete agreement and customer list acquired through an asset purchase acquisition in 2005. Also, included is deferred financing costs incurred with the bond financing for the construction of the new M&W manufacturing facility in 2007.  The non-compete agreement is being amortized on the straight-line method over its 3-year life.  The customer list is being amortized 33% per year based on a discounted cash flow analysis.  The financing costs are being amortized over the life of the related bonds ranging from 7 to 20 years, and is being charged to interest expense.


 
10

 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006


Impairment of Long-Lived Assets

The recoverability of intangible assets and other long-lived assets is assessed periodically or whenever adverse events or changes in circumstances or business climate indicate that the expected cash flows previously anticipated warrant a reassessment.  When such reassessments indicate the potential of impairment, all business factors are considered and, if the carrying value of such intangible assets and other long-lived assets are not likely to be recovered from future undiscounted operating cash flows, they will be written down for financial reporting purposes to their fair values.  There were no impairment charges for the years ended December 31, 2007 and 2006.

Revenue Recognition

The Company derives revenue primarily from the sale of the Company’s manufactured products (tanks, piping, & ductwork), installation of those tanks on occasion and service/repair.  In accordance with SEC Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”), revenue is recognized when persuasive evidence of an arrangement exists, the price is fixed and determinable, transfer of title has occurred, services have been rendered or delivery has occurred per contract terms and collection of the related receivable is reasonably assured. At times, customer deposits and other receipts are received and are deferred and recognized when earned.  Shipping and handling costs are classified as a cost of goods sold component.

Most of the Company’s products are sold without installation services included.  Revenue for product only sales is generally recognized at the time of shipment and if all other contractual obligations have been satisfied.  When the Company provides a combination of products and installation services, the arrangement is evaluated under Emerging Issues Task Force Issue (“EITF”) No. 00-21 “Revenue Arrangements with Multiple Deliverables.”  Most installation work is generally done in a short period of time (less than 30 days) and the corresponding revenue is recorded upon the completion of the installation and all contractual obligations have been met.

For any service/repair, most work is performed on a time and material basis and revenue is recognized upon performance.

AFT generally provides a standard one year warranty for product and service sales. Accruals necessary for product warranties are estimated based upon historical warranty costs which in the past have been immaterial to the financial statements as a whole. As of March 31, 2008 no accrual for warranty expense has been recorded due to immateriality.
 
Income Taxes

The Company, with the consent of its stockholder, has elected under the Internal Revenue Code to be an S-Corporation.  In lieu of corporation income taxes, the stockholders of an S-Corporation are taxed on their proportionate share of the Company’s taxable income.  Therefore, no provision or liability for federal or state income taxes is provided in these financial statements.

Effective January 1, 2008, the Company terminated its S-Corporation election.  The Company will be operating as a C-Corporation in 2008 and will be subject to income and deferred taxes on future taxable income or losses.

As previously noted, the Company consolidates its financial results under the provisions of FIN 46R.  For income tax purposes, however, the Company is not considered a consolidated entity.  As a result, income generated by M&W and FPF, as well as any losses recognized, are excluded from AFT’s net income which is ultimately passed through to the Company’s stockholder.

Advertising Expense

The Company expenses advertising costs as incurred.  Advertising expense amounted to $41,548 and $12,426 for the years ended December 31, 2007 and 2006, respectively.


 
11

 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006


Fair Value of Financial Instruments

The respective carrying value of certain on-balance sheet financial instruments approximates their fair values.  These financial instruments include cash, accounts receivable, accounts payable, accrued liabilities and debt.  Fair values were assumed to approximate cost or carrying values as most of the debt was incurred recently and the assets were acquired within one year.

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income (loss) and items defined as other comprehensive income (loss).  Items defined as other comprehensive income (loss) include items such as foreign currency translation adjustments and unrealized gains and losses on certain marketable securities.  For the year ended December 31, 2007 and 2006, there were no adjustments to net income to arrive at comprehensive income.

Earnings Per Share

Basic earnings per share is computed by dividing net income applicable to common shareholders by the weighted average number of common shares outstanding during the periods presented.  Diluted earnings per share is determined using the weighted average number of common shares outstanding during the periods presented, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of options, warrants, and conversion of convertible debt.  In periods where losses are reported, the weighted average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.

As of December 31, 2007 and 2006, there were no common stock equivalents.

3.           INVENTORY, NET

Inventories consist of the following at December 31, 2007 and 2006:

 
2007
 
2006
           
Raw materials
$
326,839
 
$
145,295
Work in progress
 
248,527
   
109,797
Finished goods
 
289,332
   
85,259
    Total
$
864,698
 
$
340,351



 
12

 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006


4.           PROPERTY AND EQUIPMENT, NET

Property and equipment are as follows at December 31, 2007 and 2006:

   
2007
   
2006
 
             
Land
  $ 41,265     $ 41,960  
Buildings and improvements
    3,523,265       314,176  
Machinery and equipment
    1,256,202       393,323  
Vehicles and trailers
    229,995       140,364  
Computer equipment
    127,727       98,950  
Furniture and office equipment
    89,896       20,732  
      5,268,350       1,009,505  
Less accumulated depreciation
    (450,494 )     (412,997 )
    Net property and equipment
  $ 4,817,856     $ 596,508  

Depreciation expense was $134,244 and $76,897 for the years ended December 31, 2007 and 2006, respectively.

The cost and accumulated amortization of equipment under capital lease as of December 31, 2007 is $21,075 and $351, respectively.

5.           INTANGIBLE ASSETS

Intangible assets are as follows at December 31, 2007 and 2006:

   
2007
   
2006
 
             
Non-compete agreement
  $ 5,000     $ 5,000  
Customer list
    74,434       74,434  
Deferred financing costs
    55,397       -  
      134,831       79,434  
Less accumulated amortization
    (57,434 )     (41,613 )
    Net intangible assets
  $ 77,397     $ 37,821  

Amortization expense was $15,821 and $19,405 for the years ended December 31, 2007 and 2006, respectively.  Amortization expense for the next five years is as follows:

2008
$
11,926
2009
 
9,158
2010
 
7,398
2011
 
6,218
2012
 
5,429


 
13

 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006


6.           FINANCING ARRANGEMENTS

Lines of Credit - Bank

The Company utilizes lines of credit to fund current operations.  The lines typically extend one year and are automatically renewed on an annual basis.  Lines of credit outstanding as of December 31, 2007 and 2006 are as follows:

   
2007
 
2006
             
AFT has a revolving line of credit with Nekoosa Port Edwards State Bank (NPESB) that provides for maximum borrowings of $250,000, bears interest at a fixed rate of 7.75% at December 31, 2007 and matures in May 2008.  The line is secured by all business assets of AFT, an assignment of life insurance on the officer/stockholder, a mortgage on property owned by M&W, and an unlimited guaranty by FPF
 
$
105,000
 
$
138,017
             
AFT has a revolving line of credit with the same bank noted above that provides for maximum borrowings of $430,000, bears interest at a fixed rate of 8.25% at December 31, 2007 and is due on demand.  The line is secured by all business assets of AFT, an assignment of life insurance on the officer/stockholder, a mortgage on M&W, and an unlimited guaranty by FPF and its stockholder
   
70,500
   
-
             
FPF has a revolving line of credit with the same bank noted above that provides for maximum borrowings of $125,000, bears interest at a fixed rate of 8.25% at December 31, 2007 and is due on demand.  The line is secured by all business assets of AFT, an assignment of life insurance on the officer/stockholder, a mortgage on property owned by M&W, and an unlimited guaranty by FPF and its stockholder
   
48,878
   
21,445
             
    Total lines of credit – bank
 
$
224,378
 
$
159,462

Short-Term Notes Payable

AFT and FPF use short-term notes payable from NPESB to fund bulk purchases of inventory and large jobs in addition to utilizing their lines of credit.  The underlying inventory and customer purchase orders serve as specific collateral for these notes.  In addition, the short-term notes are also typically secured by all business assets of each respective company.  For the FPF short-term note, AFT guarantees the note as well.  The notes bear interest at fixed rates.  The notes are typically twelve months or less.  Short-term notes payable are as follows as of December 31:
 
   
2007
 
2006
AFT
 
$
120,000
 
$
73,000
FPF
   
380,000
   
80,000
    Total
 
$
500,000
 
$
153,000
             
Weighted average interest rate
   
8.25%
   
8.01%



 
14

 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006


Long-Term Debt Obligations

Long-term debt obligations as of December 31, 2007 and 2006 are as follows:

AFT debt
 
2007
 
2006
             
US Bank - a term loan secured by a vehicle, interest rate of 6.59%, due August 2009, monthly payments of $406
 
$
4,652
 
$
11,533
             
NPESB - a term loan secured by 15 ton deck crane, interest rate of 7.25%, due October 2010, monthly payments of $948
   
27,429
   
37,886
             
NPESB - a term loan secured by all general business assets of the Company and a stockholder guarantee; interest rate of 6.75%, due February 2008, monthly payments of $898
   
58,516
   
67,669
             
Former stockholder – a $126,000 term loan, secured by assets of the Company and a stockholder guarantee; imputed interest rate of 7.0% resulting in a discount of $10,110 at December 31, 2006; due February 2011, with monthly payments of $1,500
   
-
   
64,890
             
NPESB - an industrial revenue bond term loan, secured by equipment, and a stockholder guarantee; contains restrictive financial covenants of which the Company is not in compliance with at December 31, 2007, interest rate of 5.75%, due July 2014, monthly payments of $7,266
   
473,515
   
-
             
NPESB - an industrial revenue bond term loan, secured by equipment, and a stockholder guarantee; contains restrictive financial covenants of which the Company is not in compliance with at December 31, 2007, interest rate of 5.75%, due July 2014, monthly payment of 7,266
   
401,203
   
-
             
City of Wisconsin Rapids, a term loan, secured by all assets and a stockholder guarantee; contains various operating covenants of which the Company is in compliance, interest rate 2%, due April 2012, monthly payments of $4,499
   
484,221
   
-
             
Yale Financial Services, a capital lease term loan, secured by two Yale forklifts, interest rate 7.7%, due October 2010, monthly payments of $657
   
20,027
   
-
             

 
15

 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006


M&W debt
 
2007
 
2006
             
City of Wisconsin Rapids, a $75,000 term loan, secured by owner guarantees; imputed interest at 8% resulting in a discount of $30,900 at December 31, 2007, balloons in August 2014
   
44,100
   
-
             
NPESB – an industrial revenue bond term loan, secured by real estate, stockholder and AFT guarantees; contains restrictive financial covenants of which the Company is not in compliance at December 31, 2007, interest rate of 5.75%, due July 2027, monthly payment of $20,766
   
2,965,343
   
-
             
NPESB – a term loan secured by real estate, interest rate of 6.5%, due February 2007, monthly payment of $1,868
   
-
   
188,688
             
     
4,479,006
   
370,666
    Less current portion of long-term obligations
   
(337,533)
   
(218,939)
             
    Total long-term debt obligations, net of current portion
 
$
4,141,473
 
$
151,727

Maturities of long-term debt obligations are as follows:

2008
  $ 337,533  
2009
    299,992  
2010
    299,186  
2011
    300,420  
2012
    567,636  
Thereafter
    2,674,239  
    $ 4,479,006  

At December 31, 2007, the Company was not in compliance with various restrictive financial covenants contained in the industrial revenue bonds.  The tangible net worth covenant requires the Company to maintain at least $600,000 in net worth.  The debt service coverage ratio covenant requires the Company to maintain at least 1.25 coverage.  The indebtedness to tangible net worth ratio requires the Company to maintain a ratio of less than 3.5 to 1.0.  The Company, subsequent to December 31, 2007, has received waiver letters on these covenant defaults from the lenders, and these violated covenants will not be remeasured again until December 31, 2009.

7.           EMPLOYEE PROFIT SHARING BONUS PLAN

The Company provides a discretionary profit-sharing bonus plan for their employees, whereby the Company may contribute a designated percent, annually, out of earnings and profits.  Profit sharing plan expense was $9,136 and $30,468 for the years ended December 31, 2007 and 2006, respectively.

 
16

 
ADVANCED FIBERGLASS TECHNOLOGIES, INC.  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006


8.           COMMITMENTS AND RELATED PARTY TRANSACTIONS

Manufacturing and Office Facility Lease

The Company leases its manufacturing facility at Commerce Drive, Wisconsin Rapids, WI with M&W who is considered a variable interest entity of the Company. This lease was established on August 1, 2007 for a 20 year term.  From August 1, 2007 to December 31, 2007, the Company paid $30,000 per month.  Starting on January 1, 2008, the lease calls for monthly payments of $35,000 with an annual adjustment for a cost of living increase.

Total lease payments to M&W for the years ended December 31, 2007 and 2006 were $178,000 and $48,000, respectively.

Future minimum operating lease payments for the years ending December 31 are as follows:

2008
$
420,000
2009
 
420,000
2010
 
420,000
2011
 
420,000
2012
 
420,000
Thereafter
 
6,125,000
 
$
8,225,000

Other Related Party Transactions

AFT purchased fiberglass pipe fittings from FPF totaling $143,448 and $3,836 for the years ended December 31, 2007 and 2006, respectively.

9.           SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

   
December 31,
 
   
2007
   
2006
 
             
Supplemental disclosure of cash flow information:
           
Cash paid for interest
  $ 118,510     $ 46,303  
Building construction period interest capitalized
  $ 59,377     $ -  
                 
Non-cash investing and financing activities:
               
Purchase of property and equipment with
               
    long-term debt
  $ 4,449,268     $ -  
Deferred financing costs incurred with
               
    long-term debt
  $ 45,387     $ -  

 
17
 
 


 
 


 
 
 
 
 
 
 
 
EXHIBIT 99.3
 
PRO FORMA COMBINED FINANCIAL STATEMENTS
AS OF JUNE 30, 2008
 
 
 
 
 

 
Pro-forma Consolidated Financial Statements and Footnotes

 

LAS PALMAS MOBILE ESTATES
PRO FORMA COMBINED FINANCIAL INFORMATION


The accompanying pro forma combined financial statements present the historical financial information of Las Palmas Mobile Estates (LPME), as adjusted for the planned acquisition of Advanced Fiberglass Technologies, Inc. (AFT).  For financial reporting purposes, the business consolidation is to be accounted for as an additional capitalization of AFT with AFT as the acquirer (reverse acquisition).  The operations of AFT will be the continuing operations of LPME.

The accompanying pro forma combined balance sheet presents the historical financial information of LPME as of June 30, 2008, as adjusted for the acquisition of AFT, accounted for as a reverse acquisition.

The accompanying pro forma combined statements of operations for the six months ended June 30, 2008 and the year ended December 31, 2007, combines the historical financial information of AFT for the six months ended June 30, 2008, and the year ended December 31, 2007 with the historical information of LPME for the six months ended June 30, 2008, and the year ended December 31, 2007, respectively, as if the acquisition had occurred on January 1, 2007.

The pro forma combined financial statements have been prepared by management, based on the historical financial statements of LPME and AFT.  These pro forma combined financial statements may not be indicative of the results that actually would have occurred if the combination had been in effect on the dates indicated or which may be obtained in the future.  The pro forma combined financial statements should be read in conjunction with the historical financial statements of LPME for the six months ended June 30, 2008 and the year ended December 31, 2007, and with the historical statements of AFT for the six months ended June 30, 2008 and the year ended December 31, 2007.


 
1

 
 
LAS PALMAS MOBILE ESTATES
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA COMBINED BALANCE SHEETS
JUNE 30, 2008

   
Las Palmas Mobile Estates
   
Advanced Fiberglass
   
Pro Forma Adjustments
   
Notes
   
Pro Forma Combined
 
   
(unaudited)
   
(unaudited)
   
(unaudited)
         
(unaudited)
 
ASSETS
                             
Current Assets:
                             
Cash
  $ -     $ 34,540     $ -           $ 34,540  
Accounts receivable
    -       1,086,286       -             1,086,286  
Inventories
    -       1,047,835       -             1,047,835  
Prepaid acquisition costs
            420,000       (420,000 )  
(4)
      -  
Deferred income taxes
    -       31,000       -             31,000  
Other current assets
    -       52,268       -             52,268  
Total current assets
    -       2,671,929       (420,000 )           2,251,929  
                                       
Property and equipment, net
    -       5,153,954       -             5,153,954  
                                       
Other assets:
                                     
Deferred income taxes
    -       154,000       -             154,000  
Customer list, net
            20,150                     20,150  
Deferred financing costs, net
    -       51,217       -             51,217  
Total other assets
    -       225,367       -             225,367  
Total assets
  $ -     $ 8,051,250     $ (420,000 )         $ 7,631,250  
                                       
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                     
Current Liabilities:
                                     
Current portion of long-term debt obligations
  $ -     $ 331,421     $ -           $ 331,421  
Lines of credit – bank
    -       579,008       -             579,008  
Short-term notes payable
    -       1,412,446       -             1,412,446  
Book overdraft payable
    -       31,832       -             31,832  
Accounts payable
    490       744,919       (490 )  
(3)
      744,919  
Accrued expenses
    -       63,541       -             63,541  
Accrued payroll and payroll taxes
    -       189,319       -             189,319  
Customer deposits
    -       109,938       -             109,938  
Due to officer/stockholder
    13,383       22,851       (13,383 )  
(3)
      22,851  
Total current liabilities
    13,873       3,485,275       (13,873 )           3,485,275  
                                       
Long-term debt less current maturities
    -       4,074,569       -             4,074,569  
Total liabilities
    13,873       7,559,844       (13,873 )           7,559,844  
                                       
Non-controlling interest in variable interest entities
    -       159,673       -             159,673  
                                       
STOCKHOLDERS’ EQUITY:
                                     
Common stock
    33,000       1       28,750    
(1)
         
                      (21,751 )  
(1)
      40,000  
Additional paid-in capital
    -       635,269       (6,999 )  
(1)
         
                      (46,873 )  
(2)
         
                      13,873    
(3)
      595,270  
Retained earnings (accumulated deficit)
    (46,873      (303,537     46,873    
(2)
         
                      (420,000 )  
(4)
      (723,537 )
Total stockholders’ equity
    (13,873 )     331,733       (406,127 )           (88,267 )
Total liabilities and stockholders’ equity
  $ -     $ 8,051,251     $ (420,000 )         $ 7,631,250  

See notes to the pro forma combined financial statements.

 
2

 
LAS PALMAS MOBILE ESTATES, INC.
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2008


   
Las Palmas Mobile Estates
   
Advanced Fiberglass
   
Pro Forma Adjustments
 
Notes
 
Pro Forma Combined
 
   
(unaudited)
   
(unaudited)
   
(unaudited)
     
(unaudited)
 
                           
Revenues
  $ -     $ 3,569,325     $ -       $ 3,569,325  
                                   
Cost of goods sold
    -       3,029,524       -         3,029,524  
                                   
Gross profit
    -       539,801       -         539,801  
                                   
Selling, general and administrative expenses
    2,590       1,024,966       -         1,027,556  
                                   
Loss from operations
    (2,590 )     (485,165 )     -         (487,755 )
                                   
Other income (expense):
                                 
Interest expense
    -       (171,806 )     -         (171,806 )
                                   
Loss before non-controlling interest in variable interest entities
    (2,590 )     (656,971 )     -         (659,561 )
                                   
Non-controlling interest in variable interest entities
    -       (94,306 )     -         (94,306 )
                                   
Loss before provision for income taxes
    (2,590 )     (751,277 )     -         (753,867 )
                                   
Income tax expense (benefit)
    -       (185,000 )     -         (185,000 )
Net loss
  $ (2,590 )   $ (566,277 )   $ -       $ (568,867 )
                                   
Loss per common share – basic and diluted
                            $ (0.01 )
                                   
Weighted average shares outstanding:
                                 
Basic and diluted
                              40,000,000  

See notes to the pro forma combined financial statements.


 
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LAS PALMAS MOBILE ESTATES
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2007

   
Las Palmas Mobile Estates
   
Advanced Fiberglass
   
Pro Forma Adjustments
   
Notes
   
Pro Forma Combined
 
   
(unaudited)
   
(unaudited)
   
(unaudited)
         
(unaudited)
 
                               
Revenues
  $ -     $ 6,541,256     $ -           $ 6,541,256  
                                       
Cost of goods sold
    -       5,215,245       -             5,215,245  
                                       
Gross profit
    -       1,326,011       -             1,326,011  
                                       
Selling, general and administrative expenses
    4,973       1,085,521       -             1,090,494  
Gain on sale of land and building - Variable interest entity
    -       (100,220 )     -             (100,220 )
                                       
Income/(loss) from operations
    (4,973 )     340,710       -             (335,737 )
                                       
Other income (expense):
                                     
Interest expense
    -       (132,274 )     -             (132,274 )
Interest income
    -       2,783       -             2,783  
                                       
Other expense, net
    -       (129,491 )     -             (129,491 )
                                       
Income (loss) before non-controlling interest in variable interest entities
    (4,973 )     211,219       -             206,246  
                                       
Non-controlling interest in variable interest entities
    -       (168,195 )     -             (168,195 )
                                       
Net income/(loss) before provision for income taxes
    (4,973 )     43,024       -             38,051  
                                       
Income tax expense
    -       -       (15,000 )  
(5)
      (15,000 )
                                       
Net income/(loss)
  $ (4,973 )   $ 43,024     $ (15,000 )         $ 23,051  
                                       
Earnings per common share – basic and diluted
                                $ 0.00  
                                       
Weighted average shares outstanding:
                                     
Basic and diluted
                                  40,000,000  


See notes to the pro forma combined financial statements.


 
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LAS PALMAS MOBILE ESTATES
NOTES TO THE PRO FORMA COMBINED FINANCIAL STATEMENTS.
(UNAUDITED)

Note 1 - Basis of Presentation

The accompanying pro forma combined financial statements are presented to reflect the acquisition of AFT by LPME, with the operations of AFT being the continuing operations of the combined entities.  For accounting purposes the acquisition has been treated as a recapitalization of AFT with AFT as the acquirer (reverse acquisition).

The accompanying pro forma combined balance sheet as of June 30, 2008 has been prepared to give effect to the reverse acquisition of AFT by LPME as if the acquisition occurred on June 30, 2008.  The historical financial statements prior to June 30, 2008, are those of AFT.  The accompanying pro forma combined statement of operations combines the historical operations of AFT for the six months ended June 30, 2008, and the year ended December 31, 2007, as if the acquisition had occurred on January 1, 2007.

Note 2 - Pro forma adjustments

The unaudited pro forma combined financial statements reflect the following pro forma adjustments:

(1)           As a part of the reverse acquisition, AFT shareholders will receive 28,750,000 shares of LPME and the majority shareholder of LPME will retire 21,750,000 shares of LPME so that 40,000,000 shares ($.001 par value) will be outstanding post acquisition.  All of the common shares ($0.01 par value) of AFT will simultaneously be retired.

(2)           As a result of the reverse acquisition, LPME’s deficit accumulated in the development stage will be eliminated and be offset against additional paid in capital.

(3)           Integritas, Inc. received 19.79 shares (pre-acquisition) of AFT in return for its continuing consulting services provided in the AFT/LPME reverse acquisition transaction.  Part of these services includes paying off the advances made by LPME’s officers.

(4)           Because this transaction is considered a reverse acquisition and LPME has no cash on the date of the acquisition, prepaid acquisition costs are expensed as part of the acquisition transaction.  Since acquisition costs are not a recurring operating expense, they are not reflected in the pro forma combined statement of operations and are shown as an offset to retained earnings.

(5)           AFT operated as an S-corporation in 2007.  For the year ended December 31, 2007 pro-forma financial statements, assuming a 40% income tax rate on combined LPME and AFT operations, a tax provision of $15,000 has been recorded.
 
 
 
 
 
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